The Pennsylvania State University
The Graduate School
Department of Architectural Engineering
ENTRY STRATEGIES FOR INTERNATIONAL CONSTRUCTION MARKETS
A Thesis in
Architectural Engineering
by
Chuan Chen
© 2005 Chuan Chen
Submitted in Partial Fulfillment
of the Requirements
for the Degree of
Doctor of Philosophy
December 2005
The thesis of Chuan Chen was reviewed and approved* by the following:
John I. Messner
Assistant Professor of Architectural Engineering
Thesis Advisor
Chair of Committee
Ann E. Echols
Assistant Professor of Management and Organization
Michael J. Horman
Assistant Professor of Architectural Engineering
David R. Riley
Associate Professor of Architectural Engineering
H. Randolph Thomas
Professor of Civil Engineering
Richard A. Behr
Professor of Architectural Engineering
Head of the Department of Architectural Engineering
*Signatures are on file in the Graduate School
iii
ABSTRACT
An entry mode is an institutional arrangement that makes possible the entry of a
company’s services, technology, human skills, management or other resources into a
foreign country. Selecting an inappropriate entry mode can lead to significant negative
consequences. Entry mode selection is therefore one of the most critical decisions in
international construction. The purpose of this research was to understand various entry
modes and improve the selection decision for international construction companies.
Comparative case studies identified and defined 10 basic entry modes utilized in
the international construction arena: 1) strategic alliance, 2) local agent, 3) licensing, 4)
joint venture company, 5) sole venture company, 6) branch office / company, 7)
representative office, 8) joint venture project, 9) sole venture project, and 10) BOT /
equity project. Basic entry modes can be combined or sequenced throughout the entry
into a single geographic market. These entry modes can be classified into a dichotomy:
permanent entry (joint venture company, sole venture company, branch office / company,
and representative office) versus mobile entry (joint venture project, sole venture project,
and BOT / equity project), which differ primarily in investment risk exposure, resource
commitment, and flexibility.
Complementary business and economic theories suggested 13 home country
specific, home-host country specific, host country specific, and entrant specific factors
that can influence the selection between permanent entry and mobile entry. Hypotheses
were developed centering on these factors, e.g., with other conditions being equal,
contractors are less likely to use permanent entry modes for a target market with a high
competitive intensity. Binary logistic regression analysis of empirical data was used to
test these hypotheses. The results were interpreted and analyzed. In addition, the
regression analysis, together with a two sample t-test, provided a descriptive as well as
normative statistical model for selecting superior entry modes to penetrate target foreign
construction markets.
iv
TABLE OF CONTENTS
LIST OF FIGURES ................................................................................................... x
LIST OF TABLES .....................................................................................................xiii
ACKNOWLEDGEMENTS ...................................................................................... xv
CHAPTER 1
1.1
1.2
1.3
1.4
1.5
1.6
1.7
INTRODUCTION ...........................................................................1
Background.................................................................................................... 1
Problem Statement......................................................................................... 2
Research Objectives....................................................................................... 4
Research Methodology .................................................................................. 5
Scope..............................................................................................................5
Relevance.......................................................................................................8
Reader’s Guide .............................................................................................. 8
CHAPTER 2
RESEARCH METHODOLOGY................................................... 10
2.1 Introduction....................................................................................................10
2.2 Research Process ........................................................................................... 12
2.2.1 Define Research Questions.................................................................. 13
2.2.2 Entry Mode Definition ........................................................................ 15
2.2.3 Entry Mode Selection .......................................................................... 15
2.3 Research Techniques .....................................................................................16
2.3.1 Data Collection....................................................................................16
2.3.2 Case Study ........................................................................................... 17
2.3.3 Survey................................................................................................ 19
2.3.4 Statistic Analysis .................................................................................20
2.4 Summary........................................................................................................ 20
CHAPTER 3
LITERATURE REVIEW...............................................................23
3.1 Entry as a Strategic Issue...............................................................................24
3.1.1 Strategic Planning and Management: a Construction Perspective ......24
3.1.2 Internationalization Process................................................................. 31
3.1.3 Entry Barriers ......................................................................................33
3.1.4 Entry Timing ....................................................................................... 34
3.1.5 Market Selection..................................................................................35
3.1.6 Entry Mode Selection .......................................................................... 38
3.2 Entry as an Organizational Issue ...................................................................41
v
3.3 Entry for International Construction Markets................................................42
3.3.1 International Project Go / No-Go Decision .........................................42
3.3.2 Internationalization of Construction Firms .........................................46
3.3.3 Some Entry Modes Examined in International Construction
Literature.............................................................................................. 47
3.3.4 International Construction Market Structure, Trends, and Future ......51
3.3.5 Other Related Topics in International Construction............................52
3.4 Concluding Remarks ..................................................................................... 54
3.5 Summary........................................................................................................ 55
CHAPTER 4 AN OVERVIEW OF THE INTERNATIONAL
CONSTRUCTION MARKET ENTRY............................................................ 57
4.1 A General Review of the Hisotry of International Construction...................57
4.1.1 Pre-World War II period .....................................................................57
4.1.2 Post-World War II Period until 1992...................................................59
4.1.3 The Past Decade: an Empirical Analysis.............................................63
4.1.3.1 Major Forces in the Global Construction Market ..................... 64
4.1.3.2 Major Construction Markets .....................................................65
4.1.3.3 Firm Market Share by Regions .................................................69
4.2 Comments on the Chronological Review ...................................................... 70
4.3 The Increasing Popularity of Permanent Entry .............................................71
4.4 Voices from the Industry during the Past Two Decades: A New Trend ....... 72
4.5 An Empirical Investigation of the Mobile Versus Permanent Entry
Dichotomy ..................................................................................................... 77
4.6 Summary........................................................................................................ 83
CHAPTER 5
ENTRY MODE DEFINITION ...................................................... 84
5.1 Methodology.................................................................................................. 84
5.2 Basic Entry Modes for International Construction Markets..........................88
5.2.1 Strategic Alliance (SA)........................................................................ 88
5.2.2 BOT / Equity Project ...........................................................................91
5.2.3 Joint Venture (JV) Project .................................................................94
5.2.4 Representative Office (RO)................................................................. 96
5.2.5 Licensing ............................................................................................. 98
5.2.6 Local Agent (LA) ................................................................................ 99
5.2.7 Joint Venture (JV) Company......................................................... 100
5.2.8 Sole Venture (SV) Company...............................................................103
5.2.9 Branch Office / Company (BO) ..........................................................104
5.3 Evaluation of the Entry Modes ......................................................................106
vi
5.4 Transferability and Compatibility of Entry Modes .......................................109
5.5 Entry Mode-Country Relationship (Applicability)........................................110
5.6 Summary........................................................................................................ 112
CHAPTER 6 RELATIONSHIPS BETWEEN MARKET ENTRY MODES ... 113
6.1 Classifying Entry Modes by Setting Characteristics .....................................113
6.2 A Synthesis of Setting Characteristics of Entry Modes.................................119
6.3 Different Effects of Entry Modes ..................................................................121
6.3.1 Risk Exposure...................................................................................... 122
6.3.2 Control................................................................................................. 123
6.3.3 Resource Commitment ........................................................................ 124
6.3.4 Flexibility ............................................................................................125
6.4 A Synthesis of Different Effects.................................................................... 125
6.5 An Investigation of Different Effects of Entry Modes .................................. 127
6.6 Entry Mode Combination and Sequencing.................................................... 129
6.7 A Review of the Mobile versus Permanent Entry Dichotomy ......................133
6.8 Summary........................................................................................................ 134
CHAPTER 7 THEORY DEVELOPMENT ......................................................... 136
7.1 Review of Related Theories...........................................................................136
7.1.1 Transaction Cost Economics ............................................................... 136
7.1.2 Stage Models of Entry .........................................................................138
7.1.3 Ownership Location Internalization (OLI) Paradigm .........................139
7.1.4 Organizational Capability....................................................................140
7.1.5 Bargaining Power ................................................................................ 141
7.1.6 Institutional / Cultural Theory .............................................................142
7.2 A Synthesis of Different Theories from Process Perspective........................143
7.3 Hypotheses Development ..............................................................................148
7.3.1 Home Country Factors ........................................................................ 149
7.3.1.1 Home Market Attractiveness.....................................................150
7.3.1.2 Long Term Orientation..............................................................151
7.3.1.3 Uncertainty Avoidance.............................................................. 152
7.3.2 Home Country-Host Country Factors ................................................. 153
7.3.2.1 Trade Link .................................................................................153
7.3.2.2 Cultural Distance....................................................................... 154
7.3.2.3 Colonial Link.............................................................................155
7.3.2.4 Language proximity ..................................................................156
7.3.3 Host Country Factors........................................................................... 157
7.3.3.1 Host Market Attractiveness ....................................................... 157
vii
7.3.3.2 Investment Risk.........................................................................158
7.3.3.3 Entry Restriction .......................................................................159
7.3.3.4 Competitive Intensity ................................................................160
7.3.4 Firm Factors.........................................................................................161
7.3.4.1 Firm Size ...................................................................................161
7.3.4.2 Multinational Experience ..........................................................162
7.4 Interaction Effects..........................................................................................163
7.5 A Synthesis of Influencing Factors................................................................164
7.6 Summary........................................................................................................ 165
CHAPTER 8 THEORY TESTING....................................................................... 166
8.1 Methodology.................................................................................................. 166
8.1.1 Sample ................................................................................................. 166
8.1.2 Analytical Approach............................................................................ 168
8.2 Measurement of Variables.............................................................................169
8.2.1 Measurement of the Dependent Variable ............................................169
8.2.2 Measurement of Independent Variables .............................................. 171
8.2.2.1 Home Country Market Attractiveness and Host Country
Market Attractiveness .....................................................................171
8.2.2.2 Long-term Orientation, Uncertainty Avoidance, and
Cultural Distance.............................................................................172
8.2.2.3 Trade Link .................................................................................173
8.2.2.4 Colonial Link and Language Proximity ....................................173
8.2.2.5 Investment Risk.........................................................................174
8.2.2.6 Entry Restriction .......................................................................174
8.2.2.7 Competitive Intensity ................................................................176
8.2.2.8 Firm Size ...................................................................................177
8.2.2.9 Multinational Experience ..........................................................177
8.2.2.10 Fit ............................................................................................ 178
8.2.3 Control Variable – Home Country Economic Level ...........................178
8.3 Results............................................................................................................ 178
8.3.1 Logistic Regression ............................................................................. 179
8.3.1.1 Main Effects ..............................................................................182
8.3.1.2 Interaction Effects .....................................................................187
8.3.2 T Test...................................................................................................190
8.4 Conclusions and Managerial / Future Research Implications .......................192
8.5 Summary........................................................................................................ 194
CHAPTER 9
CONCLUSIONS..............................................................................195
viii
9.1 Summary of the Research..............................................................................195
9.1.1 Characterization of the Global Construction Market Trend from a
Market Entry Perspective .......................................................................196
9.1.2 Development of a Taxonomy of Entry Modes for the Global
Construction Market...............................................................................196
9.1.3 Differentiation of Entry Modes ........................................................... 197
9.1.4 Identification of Factors Influencing Entry Mode Selection ...............198
9.1.5 Hypothesis Testing and Model Development for Entry Mode
Selection ................................................................................................. 199
9.2 Contributions of the Research .......................................................................200
9.2.1 A Taxonomy of Entry Modes for International Construction
Markets...................................................................................................200
9.2.2 Influencing Factors for Entry Mode Selection in International
Construction ...........................................................................................201
9.2.3 A Descriptive and Normative Model for Entry Mode Selection in
International Construction...................................................................... 201
9.2.4 Innovation in Research Methodology for Construction
Management ........................................................................................... 202
9.3 Limitations of the Research ...........................................................................202
9.3.1 Selection between Two Groups of Entry Modes................................. 202
9.3.2 Limited Factors Included in the Model ...............................................203
9.3.3 Data Accessibility................................................................................203
9.4 Future Research .............................................................................................204
9.4.1 Market Selection..................................................................................204
9.4.2 Selection between Basic Entry Modes ................................................204
9.4.3 Principles for Combining Different Entry Modes ...............................205
9.4.4 The Culture of International Contractors ............................................205
9.4.5 The Application of Organizational Capability in Entry Mode
Selection ................................................................................................. 205
9.5 Summary........................................................................................................ 206
Bibliography ............................................................................................................... 207
Appendix A
Cultural Index Scores for Countries (Hofstede 2001)....................222
Appendix B
Investment Risk Ratings ...................................................................224
Appendix C Lingual, Colonial, and Distance Relationships between
Countries ............................................................................................................. 227
Appendix D
Trade Link between Countries (Partial) ......................................... 229
ix
Appendix E Number of Top International Contractors in Each Market
(1992-2001) .......................................................................................................... 231
Appendix F
Entry Restriction ...............................................................................233
Appendix G
Construction Spending (1996 – 2000).............................................. 235
Appendix H
Revenue of International Contractors (Partial) .............................237
Appendix I
Entry Times of International Contractors (1992 – 2001,
Partial) ................................................................................................................. 239
Appendix J
World Bank Country Groups by Income ........................................241
Appendix K
Permanent Entries of International Contractors (Partial) ...........244
Appendix L
ENR Country Group by Region....................................................... 246
Appendix M Market Entries of Selected International Contractors (Part of
the Matrix for the Year 2001)............................................................................ 249
Appendix N
ENR Top 225 International Construction Firms (Year 2001) ......251
Appendix O
Survey Questionnaire ....................................................................... 257
Appendix P How The Top International Contractors Shared the Global
Market (Partial) .................................................................................................. 263
Appendix Q
Contractors Investigated for Entry Mode Selection ...................... 265
Appendix R
Legal and Technical Constraints against Market Entry ...............269
Appendix S
Cultural Distances between Selected Markets ................................ 285
Appendix T
Selected Case Studies ........................................................................ 290
T.1
T.2
T.3
T.4
T.5
T.6
T.7
T.8
T.9
Strategic Alliance .......................................................................................... 291
BOT Project...................................................................................................295
Joint Venture Project..................................................................................... 296
Representative Office....................................................................................297
Licensing .......................................................................................................298
Local Agent ...................................................................................................299
Joint Venture Company................................................................................. 307
Sole Venture Company ................................................................................. 309
Branch Office ................................................................................................310
x
LIST OF FIGURES
Figure 1.1: The Elements of an International Market Entry Strategy (Source:
Root 1987) ............................................................................................................ 6
Figure 2.1: Various Research Paradoxes and Typologies Used in Construction
..............................................................................................................................10
Figure 2.2: Research Process .................................................................................. 13
Figure 2.3: The Structure of the Main Knowledge Body of Statistics....................22
Figure 3.1: The Framework for Contextual Issues for International Market
Entry ..................................................................................................................... 24
Figure 3.2: A holistic Strategic Planning Methodology for Construction Firms
(Source: Alarcon and Ashley 1992) .....................................................................29
Figure 3.3:
Different Schools of Strategies
(Source: Cheah 2002) ......................31
Figure 3.4: Phases in Global Marketing Evolution (Source: Douglas and Craig
1995) .....................................................................................................................32
Figure 3.5: The Basic Mechanism of Internationalization – State And Change
Aspects (Source: Johanson 1977).........................................................................33
Figure 3.6: Decision Framework for Global Market Entry (Source: Levy and
Yoon 1995) ...........................................................................................................37
Figure 3.7: A Hierarchical Model of Choice of Entry Modes (Source: Pan and
Tse 2000) .............................................................................................................. 38
Figure 3.8: Evolution of A Manufacturer’s Decision on Entry Mode (Source:
Root 1987) ............................................................................................................39
Figure 3.9: A Schematic Representation of Entry Choice Factors (Source:
Agarwal and Ramaswami 1992)...........................................................................40
Figure 3.10: Interaction between Corporate Strategy and Organization ..................41
Figure 3.11: Entry Decision Process for International Projects (Source: Han 1999)
..............................................................................................................................44
Figure 3.12: Project Evaluation Process Model (Source: Messner 1994) ................ 45
xi
Figure 4.1: Distribution Of International Contractors’ Revenue (2001) ................65
Figure 4.2: International Construction Market Segmentation 1992-2001 ..............66
Figure 4.3: Volume of International Revenue by Geographic Region ................... 67
Figure 4.4: Internal Market Attractiveness Based on Volume of Internal Trade
Instances ............................................................................................................... 68
Figure 4.5: External Market Attractiveness Based on Volume of Internal Trade
Instances ............................................................................................................... 69
Figure 4.6: Volume of Top 225 Contractor Markets in the Global Market............ 70
Figure 4.7: The Value Chain of Construction Projects (Source: Miles 1995)........ 76
Figure 4.8:
Comparison Between Mobile Entry And Permanent Entry .................76
Figure 4.9: Chronology of Permanent Entry...........................................................79
Figure 4.10: Chronology of Mobile Entry (1980-2001) ........................................... 80
Figure 4.11: Distribution of Time Lag between Permanent Residence
Establishment and First Business Implementation ...............................................81
Figure 4.12: Distribution of Testing Time from Fist Project and Establishment of
Permanent Residence............................................................................................82
Figure 5.1: Content Analysis Tool for Each Case Study ........................................87
Figure 5.2: Relationship Mapping for Strategic Alliance .......................................91
Figure 5.3: Relationship Mapping for BOT / Equity Project..................................93
Figure 5.4: Relationship Mapping for Joint Venture Project..................................96
Figure 5.5: Relationship Mapping for Representative Office.................................98
Figure 5.6: Relationship Mapping for Joint Venture Company..............................102
Figure 5.7: Relationship Mapping for Sole Venture Company ..............................104
Figure 5.8: Relationship Mapping for Branch Office / Company ..........................106
Figure 5.9:
Transferability and Compatibility of Each Entry Mode........................109
xii
Figure 6.1:
Grouping Entry Modes Regarding Cooperative v. Competitive........... 115
Figure 6.2: Grouping Entry Modes Regarding Hierarchical Level ........................115
Figure 6.3: Grouping Entry Modes Regarding Contractual v. Investment.............116
Figure 6.4: Grouping Entry Modes Regarding Ownership.....................................116
Figure 6.5: Grouping Entry Modes Regarding Supportive v. Principle .................117
Figure 6.6: Grouping Entry Modes Regarding Market v. Hierarchy......................118
Figure 6.7: Grouping Entry Modes Regarding Mobile v. Permanent.....................118
Figure 6.8: Grouping Entry Modes Regarding Mobile v. Permanent (Used for
Mode Selection)....................................................................................................119
Figure 6.9: Grouping Entry Modes with Multiple Dimensions .............................. 121
Figure 6.10: Relationships between Effects..............................................................126
Figure 6.11: Evolution of Entry Modes in International Construction ..................... 131
Figure 6.12: Relationship between Permanent Entry and Mobile Entry ..................134
Figure 7.1: A Synthesis of Different Theories from a Process Perspective............146
Figure 7.2: Contingency Relationships between Factors and Entry Mode
Selection ............................................................................................................... 149
Figure 8.1: Relationships between Independent and Dependent Factors ...............169
Figure 8.2: Interaction Effects: Entry Restriction by Home Market Growth .........188
Figure 8.3: Interaction Effects: Entry Restriction by Cultural Distance.................189
Figure 8.4: Interaction Effects: Entry Restriction by Investment Risk...................190
Figure T.1: The Contractual Arrangement of the Shanghai Dachang Water
Plant Project..........................................................................................................295
xiii
LIST OF TABLES
Table 3.1: Triggers to Each Stage of Internationalization (Source: Douglas and
Craig 1995) ........................................................................................................... 32
Table 3.2: Responses in Organization Structure at Different Stages in the
Evolution of a Global Enterprise (Source: Root 1987) ........................................ 42
Table 4.1: Regional And Time Distribution of Leading International Contractors
(1992-2001) .......................................................................................................... 64
Table 4.2: Contractors Investigated for Mobile Entry Versus Permanent Entry........ 78
Table 5.1: Database..................................................................................................... 86
Table 5.2: Respondent Particulars .............................................................................. 107
Table 5.3: Entry Mode Evaluation.............................................................................. 107
Table 5.4: Applicability of Entry Modes for Selected Markets..................................111
Table 6.1: The Taxonomy of Entry Modes for International Construction Markets..114
Table 6.2: A Synthesis of Setting Characteristics of Entry Modes.............................120
Table 6.3: Difference Between Entry Modes Regarding Control and Contractual
Risk Exposure....................................................................................................... 128
Table 6.4: Difference between Entry Modes Regarding Resource Commitment,
Investment Risk Exposure, and Flexibility........................................................... 128
Table 6.5: Dataset for Investigating Combination and Sequencing of Entry
Modes ................................................................................................................... 130
Table 6.6: Combination of Entry Modes ....................................................................132
Table 7.1: Difference between Transaction Cost Economics and Organizational
Capability (Source: Madhok 1997) ...................................................................... 140
Table 7.2: Differences and Complements between Different Theories......................147
Table 7.3: Cultural Dimension Scores (0 = Low, 100 = High) .................................. 151
Table 7.4: The Hypotheses (Main Effects) ................................................................. 164
xiv
Table 8.1: Contractors’ Original Regions................................................................... 167
Table 8.2: Regional Distribution of Sampled Markets ...............................................168
Table 8.3: Scale to Measure Legal Barriers................................................................175
Table 8.4: Correlation Matrix .....................................................................................180
Table 8.5: Determinants of Entry Mode Selection: Binary Logistic Test (n=1998:
Mobile entry = 867; Permanent entry = 1131) ..................................................... 181
Table 8.6: Testing Results........................................................................................... 183
Table 9.1: Definitions of Entry Modes for International Construction Markets ........ 197
Table 9.2: Results of Hypothesis Testing ................................................................... 200
xv
ACKNOWLEDGEMENTS
I would like to thank my thesis committee for their encouragement, advice, and
feedback throughout this research. I am extremely grateful to my advisor, Dr. John
Messner, for his motivation, direction, support, patience, and friendship. I have learned
much from him not just about methods and skills in academic research, but also about the
United States and attitudes about career and family. His mentorship will continue to
stimulate me to resolve challenges ahead. I am indebted to Dr. Ann Echols, for her
stimulation, advice, patience, and inputs. She showed me a discipline that is worthy of
long term exploration of its application to the construction industry. I would like to thank
Dr. Randolph Thomas, for his selflessness in imparting to me his research experience and
philosophy which I will benefit from throughout my academic career. I would like to
thank Dr. David Riley and Dr. Michel Horman for their varying perspectives on this
research as well their encouragement, support, and friendship.
I would like to thank all of my previous teachers, professors, friends, and
classmates for their encouragement and guidance. It is their joint efforts that enable me to
pursue this terminal degree. I am especially thankful to a teacher at my elementary school
who first encouraged me to pursue a doctorate more than ten years ago.
I am grateful to my parents for their unconditional support in every way
throughout these years. Even in the small town in China cut off from the rest of the
world, they planted some beautiful dreams in my heart and encouraged me to pursue
them. I thank my sister Ying Chen and my brother-in-law Zuohua Yue for their love and
encouragement. I am especially thankful to my wife, Zirui Qiu, for her love, support,
patience, and cooking skills over the years since we got married. She made the long and
difficult doctorate pursuit process vital and happy. She is my wonderful companion with
whom to challenge the future. Thank you, Zirui!
xvi
I am leaving Happy Valley, my fifth hometown back for China, but I will remain
in the academic circle. I look forward to the chance to apply what I have learned here to
contribute to the construction discipline and industry of my motherland.
Thank you!
Chuan Chen (“Victor”)
1
CHAPTER 1
INTRODUCTION
1.1 Background
The international construction sector is an important part of the global economy.
Mawhinney (2001) defined international construction as construction projects where one
company, resident in one country, performs construction works in another country. This
simple definition, consistent with other definitions (Gibson et al. 2003; U.S. Department
of Commerce 1984), underpins the scope of activities investigated in this research.
Through international projects, contractors can achieve opportunities for growth
that may be unavailable in their domestic market, and capitalize on expertise and
experience gained from long involvement in a type of construction or some sophisticated
technology (Ashley and Boner 1987). To the contractors’ country of origin (home
country), the benefits from international construction can be grouped into six categories:
1) expatriation of profits from foreign projects; 2) exports of equipment and materials as
a direct result of foreign project work; 3) exports of services (such as insurance,
transportation, and financing) as a direct result of foreign project work; 4) repatriation of
personal income in the foreign projects; 5) follow-up procurement of home country goods
and services resulting from the continued operation and maintenance of foreign projects;
and 6) employment of home country nationals both in home and host countries (U.S.
Department of Commerce 1984). The host country can have projects completed when it
does not have the required expertise or resources, obtain technology transfer, benefit from
increased competition in domestic markets for quality and efficiency improvement, and
sometimes, obtain partial or entire financing for the project.
2
Han and Diekmann (2001) summarized four globalization factors in the last
decade that may expand opportunities for contractors in international construction
markets: 1) all signatory countries to the GATT [now, WTO] system opening their
domestic markets; 2) the development of regional Free Trade Blocs; 3) establishment of
world standards; and 4) rapid developments in telecommunication, travel and other
related industries.
However, it is not easy to make the best of the opportunities in international
construction markets. Working in an international setting often requires a much wider
view of the project’s context than with domestic projects where project expertise is often
disconnected from other aspects of the business; and international projects manifest more
types of risks than domestic projects (CII 2003; Han and Diekmann 2001; Mawhinney
2001). To survive and grow in the international construction arena, a contractor cannot
afford poor decisions in assigning their limited resources to diminishing markets, while
avoiding the attractive ones. In crafting effective entry strategies, contractors must, first
and foremost, evaluate market attractiveness and accessibility systematically and
objectively, however in the construction management knowledge body there is no
systematic tool or method available for this purpose. The decision to enter a new foreign
market is of critical importance for the company’s profit making ability and sustainable
growth. To domestic market oriented contractors, it is also important to understand the
foreign competitors’ entry decision to protect their competitive position in the domestic
construction market for growth and survival in a world of global competition.
1.2 Problem Statement
The construction sector is project-based (Messner 1994). This fundamental
feature determines that the entry decision is substantially centering on ‘Go / No-Go’ or
‘Bid / No-Bid’ decisions for a specific project in the targeted new market (Han and
Diekmann 2001). Ashley and Boner (1987) observed that:
3
“Multinational contractor operations abroad are project specific; offices
and key personnel are mobilized and set up prior to construction and are
usually closed and withdrawn following project conclusion. When
involved in multiple projects in one country over a prolonged period of
time, the project office may acquire a greater degree of permanence and at
some point can become recognized as a branch office of the firm. It rarely,
however, develops the kind of permanence exhibited by a wholly owned
subsidiary of a typical multinational enterprise.”
Entries in the international construction sector are more often triggered on a
contingent basis than in other international trade sectors like manufacturing. Long term
presence and increasing commitment are frequently dependent on market performance
rather than strategic vision and goals. However, new changes in the 1990s started to drive
a tendency of market entries aiming at a more sustainable and permanent presence in new
markets, including:
1) The continuous prosperousness of some construction markets in developed
economies, like that of the United States. Sustainable presence in these
markets can be profitable.
2) The continuous increase in demand within some construction markets in
developing economies, e.g., China and the Czech Republic. Early entry and
establishment of permanent residence to exploit the growth are strategically
important.
3) The dwindling size of some construction markets in export-oriented
economies, like Europe and Japan. Contractors have little choice but to turn
to foreign markets for survival and growth.
4) The emergence of innovative investment type entry modes, like mergers and
acquisitions.
5) Increasing size of global construction players. Frequent cross border mergers
or acquisitions make very large international construction firms, who place
more emphasis on entry issues on a corporate level.
4
Market entry has increasingly become a strategic and corporate-level decision. These
market entry strategies guide lower level ‘Go / No-Go’ or ‘Bid / No-Bid’ decisions
centering on specific projects within a market.
As more and more construction firms enter foreign markets, several questions of
interest to both academicians and practitioners will be increasingly asked including:
“How do construction firms enter individual foreign markets?” and “How does this entry
behavior vary across different types of firms and different entry situations in the
construction sector?”. The answers to these and other related questions in the area of
international construction are not clear. The existing knowledge of entry modes in firms
has been accumulated mostly in the context of the manufacturing industry. Given that
construction has distinct characteristics which make a wholesale transfer of concepts and
theories serving the manufacturing industry unrealistic, there is a need for adapting this
knowledge, and for developing new concepts and frameworks to meet the unique nature
of the construction industry.
1.3 Research Objectives
The goal of this research is to develop a systematic taxonomy of entry modes
specific to international construction markets along with a model for entry mode
selection. To realize this goal, the following objectives need to be accomplished:
1) To understand the history, status quo, and trends in the global construction
market from an entry perspective;
2) To define a taxonomy of market entry modes that construction companies use
to enter selected international markets prior to attaining business
sustainability within the markets; and
3) To develop a market-entry mode selection model for construction companies
to achieve optimal entry performance.
5
1.4 Research Methodology
This research applies theories and techniques previously developed and supported
in general international business fields; analyzes data from multiple sources; and elicits
opinions from seasoned leaders in the international construction industry, through the
following research steps:
1) Review literature in strategic management, international business, and
international construction to identify knowledge gaps and relevant theory;
2) Review the history and current trends in the global construction market to
identify the importance of entry related strategic decisions;
3) Define entry modes for international construction markets through
comparative case studies;
4) Differentiate and group entry modes according to their differences and
similarities in setting and effects, and identify permanent entry versus mobile
entry as the dichotomical selection problem for further research;
5) Develop hypotheses about entry mode selection through theoretical reasoning
and capitalizing on findings from previous research in international business;
and
6) Collect data and use binary logistic regression analysis to test hypotheses as
well as develop a model for selection between permanent entry and mobile
entry modes.
A more detailed description of this research process is provided in Chapter 2.
1.5 Scope
An international market entry strategy is a comprehensive plan which sets forth
the objectives, goals, resources, and policies that will guide a company’s international
business operations over a future period long enough to achieve sustainable growth in
world markets (Root 1987). Market entry strategies require decisions on (Root 1987): 1)
the choice of a target market; 2) the objectives and goals in the target market; 3) the
6
choice of an entry mode to penetrate the target country; 4) the marketing plan to penetrate
the target market; and 5) the control system to monitor performance in the target market
(see Figure 1.1). In some literature (Brouthers 1995; Buckley and Casson 1998; Taylor et
al. 2000; Tse et al. 1997), entry strategy and entry mode are interchangeably used.
In
general business literature, the mainstream research on market entry strategies focuses on
two issues: 1) market selection and 2) entry mode selection. This may be because these
two questions are most important and difficult. The scope of this research specifically
focuses on entry mode selection.
Figure 1.1: The Elements of an International Market Entry Strategy (Source: Root 1987)
Market can be defined by different dimensions, such as geographic location, size,
client, product, and service. From an entry strategy perspective, market entry decision
issues normally center on cross-border activities. For example, in Root’s theory market is
focused on country (Root 1987). This research focuses on geographic markets and
therefore, if not specifically indicated otherwise, “market” is identical to “country”.
According to Drewer (2001), the international construction system is made up of
four segments: 1) design consultancy, 2) construction, 3) labor trade, and 4) material
production. Among the four, design service is the most mobile in crossing country
borders and leaping entry and exit barriers. The labor market depends upon construction
markets to a great extent, and is normally traveling in a single direction from developing
7
countries to developed economies. Cross-border material transactions are also dependant
on construction and quite similar to common goods trade. International construction
activities attract more extensive attention from different economies, and they also face
more challenges. The scope of this research emphasizes the construction segment.
However, since many contractors also provide design services, especially in industrial
and petroleum projects or projects delivered under a design-build or turnkey delivery
system, design consultancies are also addressed in this research when they are combined
with the construction services for a project.
The foundation of the construction industry has been the focus of the debate to
whether it is production (Newcombe 1976) or service delivery (Fleming 1988;
Hillebrandt 1984). This question is important since the perspective from which one looks
at the industry defines its markets, and consequently the strategic processes which are
used to govern and direct the construction organization (Langford and Male 2001). The
latest mainstream viewpoint is that construction is a hybrid industry of both product and
service components (Langford and Male 2001; Maloney 2002; Warf 1991).
“…In the construction industry over the last twenty years, …there is a
strong differentiation between contractors who provide management
services and contractors who undertake to build the physical product.
…Large firms providing management contracting and project
management services may be regarded as part of the service industry,
whereas those providing resources which are used to construct the
building might be better described as manufacturing–style organizations.”
(Langford and Male 2001)
This research emphasizes the higher level of service featured activities that large
international contractors frequently undertake.
Except for the above mentioned restrictions, the entry mode taxonomy and entry
mode selection model developed in this research are generic tools that can help
contractors select superior entry modes to penetrate potential economies (either
developing countries or developed countries) and provide services to different types of
owners (e.g., local private, home private, local public, or international organization).
8
1.6 Relevance
With the entry mode taxonomy and entry mode selection model developed in this
research, contractors who have already developed a presence in international markets can
review and adjust the portfolio of their overseas business and entry strategies under
implementation.
These tools are especially useful for contractors who are just beginning to explore
overseas business opportunities or for global players who are expanding geographically
to new markets to choose entry modes from scratch.
Economies are becoming more global and companies can no longer count on
having domestic markets protected by tariffs and other import barriers since foreign
competitors can always find ways to leap such barriers. Contractors remaining at home,
when threatened by new entrants from abroad, can also gain insights from this research
for developing their competitive or cooperative strategies regarding market entrants.
Although this research is focused on the contractors’ perspective, government
policy makers can obtain important information from the results when forming or
reforming regulations and policies to encourage or control entry of foreign contractors, or
encourage local contractors to expand their business overseas.
1.7 Reader’s Guide
Chapter 1 provided an overview of this thesis, identified the problems and scope
of the thesis, and presented the research methodology used. Chapter 2 details the research
methodology and techniques used to achieve the objectives. Chapter 3 reports the major
findings from literature in disciplines of international business, strategic management,
and international construction in relation to international market entry. Chapter 4 reviews
the internationalization process of the global construction market, and identifies the
9
current trends in market entry and entry mode selection. Chapter 5 provides a
comparative analysis of case studies to define and characterize basic entry modes for
international construction markets, and evaluates the taxonomy with a survey of
practitioners. The feasibility of each entry mode regarding selected major construction
markets is also investigated. Chapter 6 examines the setting characteristics and effects of
each entry mode and groups them according to these dimensions. How different basic
entry modes can be combined or sequenced is also empirically investigated. Chapter 7
reviews multiple schools of theories to build hypotheses which associate internal and
external factors to entry mode selection. In Chapter 8, the hypotheses are tested with
binary logistic regression analysis and a model is developed for entry mode selection.
Chapter 9 concludes the thesis with a summarization of major findings and contributions
of the research, as well as the identification of topics for future research. The appendices
at the end of this thesis include qualitative and quantitative data to support this research
along with the survey instrument.
10
CHAPTER 2
RESEARCH METHODOLOGY
This chapter first generally introduces research methods (Section 2.1), and then
presents the methodology selected to achieve the purpose of this research (Section 2.2).
Research techniques used in the research process are detailed in Section 2.3.
2.1 Introduction
A research methodology sets out and justifies the techniques adopted for the
collection, analysis, and interpretation of data. Numerous and diverse research strategies
have been practiced in construction related areas (see Figure 2.1).
Figure 2.1: Various Research Paradoxes and Typologies Used in Construction
11
Research can be quantitative or qualitative (Fellows and Liu 1997). Quantitative
approaches seek to gather factual data and to study relationships between facts, and how
such facts and relationships accord with theories and the findings of any previously
executed research documented in the literature. Qualitative approaches seek to gain
insights and to understand people’s perceptions of the ‘world’ – whether as individuals or
groups. Qualitative research is typically a precursor to quantitative research.
Research can be exploratory, hypothesis testing, or problem solving (Phillips and
Pugh 2000). Exploratory research is involved in tackling a new problem, issue, or topic.
In this research, the idea cannot be formulated very clearly at the outset and one of the
aims is to develop new theories. Hypothesis testing research pursues the limits of
previously proposed generalizations. This is a basic research activity and one that
proceeds along easily recognizable lines. Hypothesis testing research is more likely to
take place in a structured environment with clear methodologies and measurement
criteria. Third, problem-solving research is one where a problem from practice is
identified and all intellectual resources are brought to bear upon the solution. Here, the
problem has to be defined and the method of solution has to be discovered.
More paradoxes and typologies than those listed in Figure 2.1 can be found in
general or construction management-related literature. Nevertheless, each type of study
performs a particular function and should be selected according to the nature of the issues
or questions to be addressed; the extent of existing knowledge and previous research; the
resources and time available; and the availability of suitably experienced staff to
implement the design (Hakin 2000).
This research involves multiple objectives. Some of them involve qualitative
questions (e.g., the definition of entry modes), while others are more quantitative (e.g.,
the development of the entry mode selection model). Therefore, this research uses a
hybrid approach of both quantitative and qualitative components. Entry strategy for
international construction markets is still a new issue in the construction management
12
research field (refer to Chapter 3), so this research primarily takes an exploratory
approach. However, since some theories can be borrowed from general business and
economics to approach entry mode selection issues in the construction industry, a
hypothesis testing approach is used.
2.2 Research Process
Based on the previous review of research methods and methodologies in general,
and especially those utilized by previous successfully implemented research in the
construction management field, together with thorough consideration of the purpose and
constraints involved in this specific research topic, the following research process was
developed (see Figure 2.2).
13
Research objective
definition
Literature review
(Chapter 3)
Archival analysis
(Chapter 4)
Market entry issues
(Chapter 4)
Comparative case studies
(Chapter 5)
Task 1:
Defining research
questions
Industry survey
(Chapter 5)
Basic entry mode definitions
(Chapter 5)
Task 2:
Defining entry
modes
Differentiating entry modes
(Chapter 6)
Hypothesis building
(Chapter 7)
Hypothesis testing
(Chapter 8)
Task 3:
Selecting entry
modes
Result interpretation
(Chapter 8)
Figure 2.2: Research Process
2.2.1 Task 1: Define Research Questions
The goal and scope of this research necessitate input from multiple fields, and
those emphasized in this specific research are international construction, strategic
management, (global) marketing strategy, and international business. Each of these fields
has a large body of literature. To command the mainstream of each field, this research
14
began with an extensive literature review.
A large number of academic journals,
industry journals, books, reports, proceedings, theses, laws and regulations, newspapers,
and web pages were reviewed, documented, analyzed, synthesized, and compared. The
literature review is also a source of data and information for the other research activities.
Anecdotal information was documented for later comparative case studies to define entry
modes. It should be noted that the literature review process was a concurrent activity
throughout the entire research process. The latest findings or information in related areas
were continuously monitored to incorporate new ideas or avoid potential overlap.
One of the conclusions from the literature review was that entry mode selection is
an important and extensively studied strategic issue in international business but it
received very little attention in international construction research. This led to the
following questions:
1) Is entry mode selection a critical issue in construction?
2) If it is important, are the findings about entry mode selection in general
business equally applicable in the construction industry, so no specific
research is needed?
To address these questions, this research reviews the globalization process of the
construction industry, studies the current status / trends empirically, and analyzes
comments from industry leaders regarding international market entry. It is found that
entry mode selection is also a very important issue in international construction industry.
By assuming that, as a specific industry, construction has characteristics that necessitate
findings about entry mode selection from other industries to be adapted to apply in this
industry, two research questions were proposed:
1) What are the entry modes that international contractors use to enter selected
overseas markets?
2) What are the internal and external factors influencing entry mode selection
and how do they influence the selection?
In other words, this research addresses two basic issues: entry mode definition and entry
mode selection.
15
2.2.2 Task 2: Entry Mode Definition
The study started with existing taxonomies of entry modes in general international
business, and then cases regarding each entry mode from international construction
practices were sought. Special cases that involve patterns of entry that did not match any
well defined entry modes in general business were also examined. In total, over 90 cases
were collected that jointly show the structure, formation process, merits and demerits for
a taxonomy of entry modes specifically for international construction markets. These
entry modes were further analyzed in terms of their setting characteristics (e.g.,
cooperative or competitive, permanent investment or contractual based) and their effects
(e.g., risk, control, and flexibility). Based on their similarities and differences in terms of
these setting characteristics and effects, they were grouped. One grouping scheme
provides a dichotomy of permanent entry versus mobile entry. This dichotomy was
identified as a critical selection issue for the following research step.
2.2.3 Task 3: Entry Mode Selection
The hypothesis testing method was used for entry mode selection. Theories that
may potentially influence the selection between permanent entry and mobile entry were
examined and streamlined to identify factors that can influence the selection. Hypotheses
centering on these factors were developed. Multiple sources of data were collected to test
the hypotheses and develop a model using the binary logistic regression technique. This
model that describes under what scenarios contractors will choose which entry mode is
further analyzed to check if it is a normative model with a t-test. A normative model
means that if contractors use the entry mode suggested by the model, better performance
can be achieved. The data collection and binary logistic regression analysis are
introduced in Section 2.3. Based on the results of the hypothesis testing and model
building, managerial implications were developed.
16
2.3 Research Techniques
Major techniques involved in the above research process are described in this
section.
2.3.1 Data Collection
Empirical research into market entry strategies within the construction industry is
limited. A major challenge in performing this type of research is the “data gap”. Data on
international construction companies and country markets are frequently insufficient and
sometimes suspicious since:
1) Countries use different national accounting systems;
2) Many transactions can escape official statistics, especially private sector
transactions;
3) It is difficulty to determine the time of revenue;
4) Local subcontracting makes revenue figures uncertain;
5) It is difficult to decide sample size; and
6) Low response rate / delay occurs in data collection survey.
For example, the following problems exist with data from the popular
Engineering News Record (ENR) top international contractor data:
1) Much of the ENR data is obtained by annual self-reporting surveys completed
by participating firms. Definitional problems and the self-interests of the
firms to appear in the best possible light may in some case convey misleading
information relating to individual firm rankings (U.S. Department of
Commerce 1984).
2) ENR consolidates subsidiary data with data of the subsidiary’s parent
company, even though the subsidiary may dominate the business of the
parent company and be located in a country other than that of the parent
company (U.S. Department of Commerce 1984).
17
3) Only the Top 225 international and global contractors are reported.
4) ENR data focuses on revenue with no profit figures provided.
5) ENR systematically overstates the aggregate volume of construction activity
by double-counting the subcontracts already accounted for by main contracts
awarded to other large firms (Linder 1994). This leads to an upward bias.
Even though these problems exist, the ENR data on international construction is clearly
the best of its kind available and useful for capturing trends over time and relative
distributions among firms and countries (Linder 1994; U.S. Department of Commerce
1984).
A multi-source strategy is used to bridge the data gap. More reliable conclusions
are expected by using comprehensive data sources and the complementation between
different data sources. Types of data that are used in this research include:
1) Country specific data (e.g., national cultural scoring by Hofstede);
2) Industry-based data (e.g., construction spending of each country reported by
ENR);
3) Firm specific data (e.g., international revenue of leading construction firms
reported by ENR); and
4) Specific survey-based data (see Section 2.3.3).
2.3.2 Case Study
A case study encourages an in-depth investigation of particular instances within
the research subject (Fellows and Liu 1997). The method is very useful in research areas
where (1) the research question addresses ‘how’ or ‘why’; (2) there is little control of the
events; and (3) the focus of the study is on contemporary events (Yin 2003). Case study
research may combine a variety of data collection methods of ethnography, action
research, interviews, and scrutiny of documentation (Fellows and Liu 1997). The sampled
18
cases for investigation must be representative to the manifestation or instance of the
research subject.
Jensen and Rodgers (2001) set forth five types of cases studies: 1) snapshot case
studies; 2) longitudinal case studies, 3) pre-post case studies, 4) patchwork cases studies
(combination of preceding case studies methods), and 5) comparative case studies.
Among them, comparative case studies examine a set of multiple cases studies of
multiple research entities for the purpose of cross-unit comparison. Case studies are not
representative of entire populations, and their conclusions are generalized to a theory.
Because of this, case selection should be theory-driven: the cases must represent
dimensions of certain theory. Case studies can be used either for theory testing (pattern
matching) or theory building (explanation building).
In this research, to establish a taxonomy of entry modes specifically for the global
construction industry, existing definitions and taxonomies of market entry modes
pertaining to general international business are the “theories” to be tested. The research
begins with reviewing entry modes defined in the general business discipline and find
representative cases from international construction to match them, and also try to collect
cases that involve patterns that existing entry modes do not match well and define them
as entry modes unique to the construction industry. The cases supporting a certain entry
mode or pattern are further compared with each other to define and characterize each
entry mode in the context of international construction. Some entry modes may not exist
in international construction (they are not matched by any cases collected in this
research), and they are therefore rejected from the taxonomy. Through this method, a
taxonomy of market entry modes specific to the international construction sector is
developed.
Data for case studies in this research mainly come from analysis of documentation
including books, industry journals, academic journals, newspapers, and contractors’ web
19
sites. These cases are about leading international contractors’ market entry related actions
and decisions.
2.3.3
Survey
A survey is used to evaluate specific attitudes or behaviors. It typically involves
designing and administering a questionnaire (Bordens and Abbott 1996).
There are two types of questionnaire items, open-ended and restricted (or
close-ended) items. The former allows the participant to provide a response in his or her
own words, while the later provides alternatives in a logical order, e.g., a rating scale.
The questions must be organized into a coherent, visually pleasing format. Most
questionnaires include questions designed to assess the characteristics of the participants
(or demographics) that can be used as predictor variables to determine whether
participant characteristics correlate with, or predict response to, other questions in the
survey. Reliability of the questionnaire must be assured by methods such as repeated
testing and split half test.
After developing the questionnaire, the researcher can choose to mail it to
subjects (mail survey), telephone participants to ask the questions directly (telephone
survey), or conduct face-to-face interviews (structured interview survey). Without a
questionnaire, unstructured interview surveys can be conducted, which in comparison
with a structured interview survey, is more flexible, but not as easy to summarize and
analyze (Bordens and Abbott 1996). Proper sampling is a crucial aspect of a sound
survey research methodology. Regardless of the administration method, the sample
should be representative of the population of interest. Sampling technique can be chosen
from simple random sampling, stratified sampling, proportionate sampling, systematic
sampling, and cluster sampling, among others.
20
2.3.4 Statistic Analysis
Statistic analysis is widely used in hypothesis testing research. The structure of
the main knowledge body of statistics is depicted in Figure 2.3. This research, based on
theoretical reasoning, develops a set of hypotheses centering on different independent
variables regarding their impacts on entry mode selection. The categorical nature of the
dependent variable (permanent entry versus mobile entry) and the hypothesized
relationships indicate that binary (or binomial) logistic regression analysis is an
appropriate analytical technique (highlighted in Figure 2.3).
Binary logistic regression is used when the dependent variable is a dichotomy and
the independent variables are of any type. Logistic regression can be used to predict a
dependent variable on the basis of independents; determine the percent of variance in the
dependent variable explained by the independents; rank the relative importance of
independents; and assess interaction effects. Logistic regression is a robust process since:
1) It does not assume a linear relationship between the dependent variable and
the independent variables;
2) The dependent variable need not be normally distributed;
3) The dependent variable need not be homoscedastic for each level of the
independents;
4) It does not require that the independents be an interval; and
5) It does not require that the independents be unbounded.
But like Ordinary Least Squares (OLS) regression, it requires no perfect multicollinearity.
It also needs a large of sample size.
2.4 Summary
A methodology utilizing both exploratory and hypothesis testing approaches was
designed for this research. Comparative case studies are used to define entry modes and
21
develop a market entry mode taxonomy specifically for international construction. Binary
logistic regression is used to analyze a large sample of data of different sources to test
hypotheses developed with extensive theoretical reasoning and develop a model for entry
mode selection.
22
Figure 2.3: The Structure of the Main Knowledge Body of Statistics
23
CHAPTER 3
LITERATURE REVIEW
Day (1986) suggests that there are two major managerial decisions to make when
considering market entry: 1) the timing of market entry (e.g., being a pioneer; being a fast
follower or an early entrant; or being a late entrant), and 2) the mode of the market entry
(e.g., internal development, acquisition, or joint venture). In addition to these two key
decision areas, Karakaya and Stahl (1991) claimed that one must consider the type and
magnitude of barriers to market entry and plan a strategy to deal with these barriers as
well as to create barriers to entry for competition once in the market. Root (1987)
contended that market entry strategies require five decisions: 1) the choice of a target
market; 2) the objectives and goals in the target market; 3) the choice of an entry mode to
penetrate the target country; 4) the marketing plan to penetrate the target market; and 5)
the control system to monitor performance in the target market. In fact most literature on
international market entry focuses on four issues: 1) entry barriers; 2) market selection; 3)
entry timing; and 4) entry mode selection. In addition to examining international market
entry as a strategic issue, some research focuses on the organizational aspect. The major
concepts involved in international market entry and the interrelationships between them
is depicted in Figure 3.1
24
Figure 3.1: The Framework for Contextual Issues for International Market Entry
3.1 Entry as a Strategic Issue
Market entry is a corporate level issue, and entry strategy is the strategic issue
with the most far-reaching ramifications for all levels of strategy (Yip 1982). This section
reviews the general literature about strategy from a construction industry perspective.
3.1.1 Strategic Planning and Management: a Construction Perspective
According to Betts and Ofori (1992), the long term survival of most large
organizations depends upon effective strategic management. The history of strategy and
strategic management can be traced back to ancient Greece (Chinowsky and Meredith
2000). However, research by the academic community has occurred primarily in the past
four decades (Cheah 2002), and this discipline centering on ‘strategy’ has not been
25
evolving into a consistent and well structured knowledge body. There are many apparent
disagreements among leading theorists in the field of strategy (Price and Newson 2003).
De Wit and Meyer (1998) stated that “there are strongly differing opinions on most of the
key issues within the field and the disagreements run so deep that even a common
definition of the term strategy is illusive.” One major reason is that the strategy discipline
was developed by borrowing from different quantitative or qualitative disciplines,
including economics (especially industrial economics), finance, psychology, sociology,
and military arts (Cheah 2002; Chinowsky and Meredith 2000).
Effective strategic management is especially important for construction
organizations, which have to provide increasingly complex projects within a highly
turbulent and competitive business environment (Price and Newson 2003). However,
literature on strategic management is limited in the context of civil and architectural
engineering, which has a project management tradition (Chinowsky and Meredith 2000;
Messner 1994). Observing that the project management concept is the central focus for
researchers, practitioners, and academic programs, Chinowsky and Meredith (2000)
believed the lack of strategic management knowledge constitutes a knowledge gap
between project level perspectives and corporate level responsibilities within the civil
engineering industry.
Literature on strategy and strategic management in the construction domain can
be roughly classified in the following categories.
What is strategy?
It is important to examine the definitions of basic concepts so as to provide
understanding and meaning to the subject matter so that a frame of reference may be
formulated where further discussions can be carried out (Low 1996). This is especially
necessary regarding strategy, since there is no single, concise, and universally accepted
definition of strategy (De Wit and Meyer 1998; Junnonen 1998; Langford and Male
2001; Mintzberg et al. 1998).
26
Strategy has been viewed as an idea that sets in place a path that responds to
multiple internal and external influences (Porter 1979; Hamel and Prahalad 1989; Collis
and Montgomery 1991). Hofer & Schendel (1978) used a resource based approach and
define a strategy as the alignment of an organization’s resources with the environmental
conditions with which it has to deal. Vasconcellos (1999) went back to the origins of
strategy as a concept within military warfare and differentiated between strategy (where
to compete) and tactics (how to compete). Within this perspective there are three types of
strategic decisions concerned with where to compete:
z
In which geographic area does a company wish to compete and / or operate?
z
In which industry(s) in a geographical area does a company wish to compete
and / or operate? and
z
In which segment(s) within an industry in a geographical area does a
company wish to compete and / or operate?
In the construction context, Warszawski (1996) proposed that strategies are long
range plans, methods, and approaches that a company adopts in order to reach its goals in
a competitive environment. Some important features of strategic decisions are that they
are taken at the highest level of the firm and involve long range organizational
commitment and investment of resources. Chinowsky and Meredith (2000) defined
strategy as the underlying concept that responds to, or anticipates, industry conditions for
the purpose of developing long term plans. Price and Newson (2003), after reviewing the
definitions proposed by De Wit and Meyer (1998), Quinn (1980), and Johnson and
Scholes (2002), contended that the definition most favored by construction industry
representatives is the one by Johnson and Scholes (2002), that strategy is “the direction
and scope of an organization over the long term, which achieves advantage for the
organization through its configuration of resources within a changing environment, to
meet the needs of markets and to fulfill stakeholder expectation.”
There are three levels of strategies (Hunger and Wheelen 2001):
27
“Corporate strategy describes a company’s overall direction in terms of its
general attitude toward growth and the management of its various
businesses and product lines. Corporate strategy is composed of
directional strategy, portfolio analysis, and parenting strategy. Business
strategy usually occurs at the business unit or product level, and
emphasizes improvement of the competitive position of a corporation’s
products or services in the specific industry or market segment served by
that business suit. Business strategies are composed of competitive and
cooperative strategies. Functional strategy is the approach taken by a
functional area, such as marketing or research and development, to
achieve corporate and business unit objectives and strategies by
maximizing resource productivity. It is concerned with developing and
nurturing a distinctive competence to provide a company or business unit
with a competitive advantage.”
These three levels of strategy are reasonably distinct, particularly because of the usual
organizational split between them (Yip 1982). These three classes of strategy can be
further characterized as competitive or noncompetitive (Yip 1982).
Strategic planning process
Strategic planning and strategic management are, in many cases, interchangeably
used in the business domain. However, Chinowsky (2001) and Chinowsky and Meredith
(2000) emphasized the difference and contended that strategic management provides the
environment that encourages the development of strategic concepts (or strategies), while
strategic planning provides specific instructions for approaching, executing, and
evaluating the development of strategic concepts. The strategic planning process is
analysis based, which means it is a process combined by subjective judgment and
objective analysis. Nevertheless, all these ‘deliberate’ processes can be conceptualized in
a four step generic process: goal definition, strategy identification, strategy selection, and
strategy implementation. Some analysis tools were created and some of them have been
accepted as norms (e.g., SWOT analysis).
Warszawski (1996) proposed a five step strategic planning process specifically
focused on construction companies:
28
1) Examine the company’s mission – the scope of its activities and objectives;
2) Survey the environment of the company – exterior parameters and constraints
set by the environment;
3) Survey the company – internal parameters and decision variables;
4) Develop alternative strategies; and
5) Select the preferred strategy.
Alarcon and Ashley (1992; 1996) proposed a holistic strategic planning
methodology for construction firms (see Figure 3.2 ). It incorporates a conceptual model
which is a simplified model of the variables and interactions present in the analysis of
strategic decisions in the construction industry, and a mathematical model designed to
predict the impact of strategic decisions by integrating export knowledge and assessment
of the strategic planning team. Strategies for long term company development such as
marketing programs to emerging markets, systems to implement total quality
management, etc., and different combinations of strategies, can be evaluated using
criteria selected by company management.
It seems that the strategic planning process proposed in the civil and architectural
fields shares a ‘deliberate’ characteristic. However, some strategic theorists argue that
strategies cannot be comprehended by the sequential dividing of activities, but are formed
in a continuous and iterative process of social interactions involving various activities and
actors (Mintzberg 1978; Mintzberg 1988; Mintzberg and Walewski 1985; Mintzberg and
Waters 1982). This view was agreed to by Junnonen (1998) from a construction industry
view point.
29
MODULE 1.ENTRY
INITIAL MOTIVATION
OTHER EXPERIENCES ANALYSIS
BASIC STRATEGIC CONCEPTS DEFINITION
PRELIMINARY INTERNAL ANALYSIS
CULTURE
PHILOSOPHY
HUMAN RESOURCE MANAGEMENT
ORGANIZATIONAL CLIMATE
PRELIMINARY EXTERNAL ANALYSIS
PRELIMINARY CONCLUSIONS
DECISION-MAKING METHODOLOGICAL APPROACH ANALYSIS
MODULE 2. FORMULATION
STRATEGIC DECISION-MAKING STRUCTURE
CONCEPTUAL MODELING
CAUSAL QUALITATIVE ANALYSIS
EXTERNAL FACTORS DEFINITION
INTERNAL DRIVERS DEFINITION
PROCESSES DEFINITION
OBJECTIVES DEFINITION
MATHEMATICAL MODELING
CROSS IMPACT ASSESSMENT
STRATEGIES MODELING
STRATEGY ALTERNATIVES MODELING
IMPLEMENTATION PROGRAMS MODELING
MISSION, OBJECTIVES AND GOALS
MISSION DEVELOPMENT
STRATEGIC OBJECTIVES SELECTION
PRELIMINARY ASSESSMENT OF FUTURE
DEVELOPMENT SCENARIOS
STRATEGIC DECISION ANALYSIS
STRATEGIES EVALUATION
STRATEGY ALTERNATIVES EVALUATION
IMPLEMENTATION PROGRAM
EVALUATION
STRATEGIES
INTERNAL ANALYSIS
EXTERNAL ANALYSIS
SET STRATEGY PRIORITIES
AND SELECTION
STRATEGY FORMULATION
MODULE 3. IMPLEMENTATION
STRATEGIC PLAN DEVELOPMENT
GLOBAL IMPLEMENTATION PLANS DEVELOPMENT
ANNUAL STRATEGIC PLANS DEVELOPMENT
ANNUAL IMPLEMENTATION PLAN DEVELOPMENT
CONTROL AND FOLLOWING PLANS DEVELOPMENT
Figure 3.2: A Holistic Strategic Planning Methodology for Construction Firms (Source:
Alarcon and Ashley 1992)
Although there may be a large number of strategic alternatives involved in
strategy identification, some grand or generic strategies have been typified, like those of
Pierce (1980) (concentrated growth, market development, product development,
innovation, horizontal integration, vertical integration, opening of joint venture,
concentric diversification, conglomerate diversification, retrenchment, divestiture, and
liquidation), those of Vesper (1979) (multiplication, monopolization, specialization, and
liquidation), and those of Porter (1980) (cost leadership, differentiation, and focus).
Among them, Porter’s model may be the most extensively referred. Warszawski (1996)
proposed that construction companies can 1) obtain cost leadership by standardization of
products, training of personnel, tight control, careful selection of suppliers, technological
advance, and incentive programs; 2) obtain differentiation by higher standard of product,
30
higher quality of product, faster project completion, more extensive service to clients; and
3) obtain focus by focusing on certain types of projects, certain geographical areas, or
certain types of clients. In practice, many construction organizations are driven to adopt
cost leadership strategies by construction’s traditional tendering procurement processes,
however the adoption of best value and / or partnering criteria for procuring construction
work by some clients (e.g., UK public sector) has enabled many construction
organizations to make better use of differentiation strategies (Price and Newson 2003).
Different schools of strategic theories
Whether the strategic planning process is a rational and linear process as
introduced above, was criticized by other strategic theorists like De Wit and Meyer
(1998). They contended that strategies are instead formed incrementally through
experimentation. Several ‘paradoxes’ were therefore raised about different opinions
regarding strategy formation including: logical (rational) versus creative (generative)
strategies; intended (deliberate) versus realized (emergent) strategies; revolutionary
versus transformational strategies; strategic fit versus strategic stretch; and strategy
versus organizational effectiveness. Price and Newson (2003) discussed the implications
of these paradoxes from a construction perspective. Also, several of these paradoxes form
dimensions to differentiate different schools of strategic theories.
De Wit and Meyer (1998) introduced the three interactive dimensions of strategy
that can be recognized in every real life strategic problem situation: strategy process,
strategy content, and strategy context. Whittington (2001) integrated two dimensions of
strategy content and strategy process to map distinct schools of thoughts on strategy (see
Figure 3.3). This taxonomy was adopted and enhanced by Cheah (2002). In Figure 3.3,
the vertical axis examines the degree of variation of strategic content, and the horizontal
axis considers whether such content is derived from deliberate planning, calculation and
formulation, or simply as an emerging product of accidents, chance, and social and
organizational inertia (Cheah 2002).
31
Outcome
Figure 3.3: Different Schools of Strategies (Source: Cheah 2000)
3.1.2 Internationalization Process
In comparison with formulating strategies for domestic markets, the international
marketing strategy development involves different sets of factors of culture, international
trade, language, and legal system. Strategy formation in international markets involves a
number of key parameters which vary depending on the phase of internationalization.
Douglas and Craig (1995) divided a firm’s gradual involvement in international
markets into three phases: 1) initial foreign market entry; 2) local or national market
expansion; and 3) global rationalization (see Figure 3.4 ). Prior to the firm’s entry into
international markets, the domestic market is the focal point of strategy development and
defines the boundaries of operations. A variety of triggers may drive the firm to enter
international market (see Table 3.1 ). The key decisions at initial entry include: 1) the
choice of countries to enter; 2) the timing of entry; and 3) how operations are to be
conducted in these countries (entry mode). These decisions are crucial, because they
entail commitments to locations and to other firms that are difficult to change in the short
term and set the pattern for future market development. Once the firm has established
32
operations in the foreign market, attention shifts to developing local market potential
triggered by some factors (see Table 3.1 ). From this point forward, the decisions
become an adoption of a nationally and then globally oriented approach to strategy
planning and development and extend beyond the focus of this research.
Figure 3.4: Phases in Global Marketing Evolution (Source: Douglas and Craig 1995)
Table 3.1: Triggers to Each Stage of Internationalization (Source: Douglas and Craig
1995)
Initial market entry
1. Saturation of domestic market
2. Movement of customers into foreign markets
3. Diversification of risk
4. Sourcing opportunities in foreign markets
5. Entry of foreign competition in home market
6. Desire to keep abreast of technological changes
7. Government incentives to export
8. Advances in communications technology and marketing
infrastructure
Local market expansion
1. Local market growth
2. Meeting local competition
3. Local management initiative and motivation
4. Desire to utilize local assets more effectively
5. Natural market boundaries
Consistent with the model of Douglas and Craig (1995), Root (1987) indicated
that entry strategy is “a comprehensive plan that will guide a company’s international
business operations over a future period long enough to achieve sustainable growth in
world markets.” For most companies, the time horizon is from three to five years.
33
Johanson and Vahlane (1977) agreed with several previous studies of
international business that internationalization of the firms is a process in which the firms
gradually increase their international involvement, and they also believed that all
decisions in this process – decisions to start exporting to a country, to establish export
channels, to start a selling subsidiary, and so forth – have some common characteristics.
They therefore proposed a conceptual model to explain the same basic mechanism in all
steps as depicted in Figure 3.5. The main structure of the model is the distinction
between the state (market knowledge and market commitment) and change aspects
(commitment decisions and current activities) in the individual foreign country. The
model indicates the market knowledge and market commitment affect both commitment
decisions and the way current activities are performed and vice versa.
Figure 3.5: The Basic Mechanism of Internationalization – State And Change Aspects
(Source: Johanson and Vahlane 1977)
3.1.3 Entry Barriers
From an industry organization researcher’s viewpoint, Porter (1980) described
entry barriers as features of an industry that give incumbents inherent advantages over
potential entrants. Barriers to entry result in fewer entries and therefore above average
profitability on behalf of incumbents (Yip 1982).
Porter (1980) proposed six major
entry barriers, which are 1) cost advantages of incumbents; 2) product differentiation of
incumbents; 3) capital requirements; 4) customer switching costs; 5) access to
distribution channels; and 6) government policy.
34
Similarly, but in a more broad sense, Shepherd (1979) defined barriers to entry as
anything that decreases the likelihood, scope, or speed of the potential competitors
coming into the market. Barriers include all manners of specific devices, such as patents,
mineral rights and franchises, as well as more general economic barriers. Based on
Shepherd’s definition, Karakaya and Stahl (1991) identified 25 market entry barriers,
which are further grouped into two categories: 1) competitor-activated or controllable
barriers to entry; and 2) environmental or uncontrollable barriers to entry. Karakaya and
Stahl (1991) also identified the following barriers to entry in international markets that
differ from those in domestic markets:
z
Cultural differences (i.e., the social system);
z
Language;
z
Access to distribution channels;
z
Customer switching costs;
z
Government policy (i.e., taxes, licensing requirements);
z
Product adaptation;
z
Stability of the currency exchange rate;
z
Expected local and global competition;
z
Changes required in promotional activities;
z
Nationalism;
z
Political environment;
z
Economic environment;
z
Corruption; and
z
Cost advantages held by local companies.
3.1.4 Entry Timing
The issue of entry timing has received very limited attention in international
business research (Rivoli and Salorio 1996). Early entry involves both advantages and
35
disadvantages (Isobe et al. 2000). For example, early movers have a quasi monopoly and
therefore capture higher economic rents than in a competitive marketplace (von Hippel
1988): they can easily acquire scarce assets like locally available input factors and
geographic space; and they can develop a unique local buyer network (Lieberman and
Montgomery 1988). However late entrants can gain advantages over an early mover
when they possess capabilities to acquire the same technology at a lower cost; use
superior technology to produce better or cheaper products; capture shifts in consumers’
tastes more quickly; and make more intensive investments than early movers (Lieberman
and Montgomery 1988).
In an international market context, studies suggest that early movers tend to have
higher failure rates compared to early followers because the latter benefit from the
experience of the former (Mitchell et al. 1994; Shaver et al. 1997; Yan 1998). But the
prevalent view has been that early movers enjoy enduring advantages over the late
entrants (Pan and Chi 1999). Some studies on China (Isobe et al. 2000; Luo 1999; Pan
and Chi 1999) report that early entrants attain high performance.
3.1.5 Market Selection
International market selection has been defined as the process of establishing
criteria for selecting markets (countries), investigating market potentials, classifying them
according to the agreed criteria, and selecting which markets should be addressed first
compared to those suitable for later development (Kumar 1994). Selecting new markets is
often largely understood as an information-processing and optimizing problem (Andersen
and Strandskov 1998).
Multiple market selection models have been proposed in the literature
(Papadopoulos and Denis 1988), and can be classified into two categories: general and
context-specific (applicable to specific industries, categorist of companies and / or
36
business situations). Most models view the market selection process as composed of three
stages (Koch 2001):
z
Screening: At this stage, macro-level indicators are used to screen out
countries that do not meet the objectives of the firms (Kumar 1994) or criteria
like market size, growth rate, basic fit between customer preferences and the
existing product line, and competitive rivalry (Johansson 1997).
z
Identification (or in-depth screening): At this stage, industry-level factors like
market size and growth, level of competition, entry barriers and market
segments are investigated to assess industry attractiveness of each short-listed
country.
z
(Final) selection: At this stage, firm-specific factors like profitability and
product compatibility with the exiting portfolio are investigated to select the
markets to enter.
Levy and Yoon (1995) proposed an information processing model in Figure 3.6
for a firm's globalizing decision, which relates the major evaluation criteria required for
an ultimate Go vs. No Go decision. It contains principal categories for analysis deemed
essential by both practitioners and researchers in international business (Jain 1990; Root
1987): (1) the company's strategic intention; (2) assess market opportunity; (3) estimate
payback risk; and (4) discern synergistic effects. One characteristic of this model is that it
changes the market selection issue into a Go / No-go decision regarding individual
markets.
37
Entry
pressure
Strategic
intention
Resource
availability
Market
opportunity
Entry/No-Entry
Decision
Payback
risk
Growth of global market
Competitive global entry
Long term corporate commitment
Financial resources
Capacity utilization
Expected
sales
potential
GDP level
Expected
profit
potential
Production cost advantage
Non
economic
risk
Political risk
Economic
risk
GDP growth rate
Competition
Marketing cost advantage
Social risk
Foreign exchange rate
Trade balance
R&D/engineering synergy
Synergy
effects
Product
synergy
Manufacturing synergy
Logistics synergy
Global
business
synery
Management experience
Marketing experience
Figure 3.6: Decision Framework for Global Market Entry (Source: Levy and Yoon
1995)
Andersen and Strandskov (1998) argued that traditional market selection
approaches emphasized universal and normative guidelines and have excluded the
idiosyncrasies of decision makers and the complexity of contingent decision-making.
They therefore proposed a model for mapping managerial decision-making based on the
means-end theory.
38
3.1.6 Entry Mode Selection
Foreign market entry mode is an institutional arrangement for organizing and
conducting international business transactions (Andersen 1997). There are many entry
modes available, but the four most common modes of foreign market entry are exporting,
licensing, joint venture, and sole venture (Agarwal and Ramaswami 1992). As suggested
by Kumar and Subramaniam (1997), a natural hierarchy exists among the various modes
of entry, although this hierarchy takes different forms in different studies. Figure 3.7
depicts a hierarchical model proposed by Pan and Tse (2000).
Choice of entry modes
Non-Equity Modes
Export
Equity Modes
Contractual
agreements
Equity joint venture
Wholly owned
subsidiary
Direct export
Licensing
Minority EJV
Greenfield
Indirect export
R&D contracts
50% EJV
Acquisition
Others
Alliances
Majority EJV
Others
Others
Figure 3.7: A Hierarchical Model of Choice of Entry Modes (Source: Pan and Tse
2000)
Since entry modes involve great resource commitments, and change of them will
cause considerable loss of time and money, entry mode selection is a very important
strategic decision (Agarwal and Ramaswami 1992) and has been a topic of strong interest
and considerable inquiry in the international business and marketing literature (Brown et
al. 2003; Tse et al. 1997). The primary objective of these studies is to identify and
evaluate the factors that determine the best entry mode, which aligns the entrants’
39
strengths and weaknesses with the local market’s environment as well as with the firm’s
structural and strategic characteristics (Brown et al. 2003).
Most past studies on foreign market entry selection can be classified into three
approaches:
1) Gradual incremental involvement approach, which contends that when the firm
first enters an overseas market, a low resource commitment mode such as export is
desirable. As the firm acquires more knowledge and experience in that overseas market,
modes with higher levels of resource commitment, risk, control and profit return will be
pursued, e.g., sole venture (see Figure 3.8);
Figure 3.8: Evolution of A Manufacturer’s Decision on Entry Mode (Source: Root
1987)
2) Transaction cost approach, which prescribes cross-border activities according
to the economic rationale that firms will minimize all costs associated with the entire
value-added chain (from production to consumption of goods) by internalizing those
activities that they can perform at a lower cost, but subcontracting those activities
externally if other providers have a cost advantage (Pan and Tse 2000); and
40
3) Eclectic framework approach, which was proposed by Dunning (1980; 1988).
It proposes that cross-border business activities are influenced by three types of factors:
location specific factors; ownership specific factors; and internalization specific factors
(see Figure 3.9 ). While many scholars argued that ownership and internalization factors
share some similarities with the transaction cost perspective (Tse et al. 1997), Dunning
emphasized that location-specific factors are becoming more significant in affecting a
firm’s international operations. Other eclectic frameworks include those proposed by
Kim and Hwang (1992) and Tse et al. (1997).
Figure 3.9: A Schematic Representation of Entry Choice Factors (Source: Agarwal and
Ramaswami 1992)
Recently, a number of studies focused on the impact of some strategic factors
upon entry mode decisions from a competitive advantage perspective (Brown et al.
2003). For example, Bradley and Gannon (2000) studied how a firm’s market
concentration / diversification strategy affects the choice of foreign market entry mode;
Kim and Hwang (1992) examined how global concentration, global synergies, and global
strategic motivations influence its market entry mode selection. Brown et al. (2003)
indicated that previous research on the foreign market entry mode decision has centered
on the production and distribution functions, and this question in the service industry has
been neglected.
41
3.2 Entry as an Organizational Issue
The relationship between entry strategy and the entrant organization is not an
emphasis in this research, but this issue is so important that a mention of it is of great
value to pinpoint valuable topics for future research as well as draw a comprehensive
picture of the concepts, ideas, and theories that cover the scope of this research.
Cheah (2002) proposed a conceptual model (see Figure 3.10) depicting the
interaction between corporate strategy and firm organization. He contended that within
corporate strategy and organization, there are distinctive components anchoring each of
the two areas and driving the interaction between them. His research implies that there
should be a two way interaction between entry strategy and international enterprise
organization.
Figure 3.10:
2000)
Interaction between Corporate Strategy and Organization (Source: Cheah
Root (1987) specifically addressed this issue in the foreign market entry decision,
and contended that as an enterprise becomes more international, its organization structure
also evolves in response to shifts in international strategies (see Table 3.2 ). However,
Root (1987) recognized that normally a company’s organization most lags behind its
strategy.
42
Table 3.2: Responses in Organization Structure at Different Stages in the Evolution of a
Global Enterprise (Source: Root 1987)
Stage
International strategy
1
None.
2
Enter foreign markets with direct exports.
3
Enter some foreign markets with investment in
local production; enter other markets with
noninvestment modes.
4
Serve markets throughout the world from
multiple country sources, as guided by a global
strategy
Organization response
None, or built-in export department.
Full-function export department or division.
International division.
Modified international division, global
organization, or mixed organization structure.
3.3 Entry for International Construction Markets
This section applies the framework in Figure 3.1 to examine the international
construction management literature to: 1) structure the findings in the international
construction market entry context; 2) evaluate the progress of entry related research in the
construction management domain; and 3) identify gaps between the general management
and construction management literature.
3.3.1 International Project Go / No-Go Decision
Han (1999) indicated that market entry decisions consist of three sequentially
related stages: 1) which countries are more favorable or less risky to do business in? 2)
within a candidate country, which potential candidate projects should be selected to
evaluate in more detail? and 3) finally, whether to “go or not to go” on a specific project
opportunity? (see Figure 3.11). This sequential process neglects the entry mode decision
issue. This may be explained by the project-based nature of the construction industry
(Messner 1994). Ashley and Boner (Ashley and Boner 1987) observed that:
“Multinational contractor operations abroad are project –specific; offices
and key personnel are mobilized and set up prior to construction and are
usually closed and withdrawn following project conclusion. When
involved in multiple projects in one country over a prolonged period of
43
time, the project office may acquire a greater degree of permanence and at
some point can become recognized as a branch office of the firm. It rarely,
however, develops the kind of permanence exhibited by a wholly owned
subsidiary of a typical multinational enterprise.”
According to Ofori (1996), “…owning to perceived poor economic prospects in
the host countries (and hence, lack of continuity of work) and / or unstable political
environments, international contractors largely adopt ad hoc approaches to their
operations in developing countries. They enter these countries to undertake projects, and
withdraw after completing them. …” This fundamental feature determines that the entry
decision is substantially centering on ‘Go / No-Go’ or ‘Bid / No-Bid’ decisions for a
specific project in the targeted new market (Ahmad 1990; Han and Diekmann 2001;
Messner 1994).
44
Pick a specific country
Identify country risks
and evaluate them
Satisfy the min.
level goal
No
Abandon: Seek other
country opportunities
Yes
Enter this country
No-Go: Wait for other
potential projects
Investigate candidate
projects opportunities
Evaluate each project
to decide Go/No-Go
No
Yes
Decision options
are improvable?
No
Develop alternative
decision options
Yes
Satisfy the min.
level goal
Go
Figure 3.11: Entry Decision Process for International Projects (Source: Han 1999)
Messner (1994) presented an exploratory investigation into the project evaluation
decision made by construction companies pursuing international projects. He developed
the Organization Based Information Architecture (OBIA), which incorporates five
generic categories of information needed to effectively evaluate a project. These
categories are organizations, commitments, processes, environments, and facilities, each
of which is further decomposed.
In addition, Messner proposed a Project Evaluation
Process Model of five main activities: 1) assess project feasibility; 2) determine ability to
45
perform; 3) assess competitive advantages; 4) determine project risks; and 5) select
projects to pursue (see Figure 3.12). Both tools developed by Messner are qualitative.
Potential
projects
Management
information
Feasibility
study
Organizational
resources
Assess project
feasibility
Performance
assessment
Determine ability
to perform
Assess
competitive
advantages
Competitive
advantages
Determine project
risks
Project
risks
Select projects to
pursue
Projects
to pursue
Organization
management
Figure 3.12:
Project Evaluation Process Model (Source: Messner 1994)
Han (1999) used the Cross-Impact Analysis (CIA) method as an uncertainty
reasoning tool for assessing risks involved in international project evaluation, and
developed a risk-based Go / No-Go decision model. The model includes a total of 32
variables belonging to one of the following five groups:
1) Country conditions, such as political conditions and economic conditions;
2) The contractor’s decision strategies, i.e., controllable variables such as
resources and owner relationship;
3) Intermediate variables, i.e., uncontrollable variables impacted by either the
country conditions or the decision strategies, such as currency exchange rate
and need for work;
4) Successor variables, i.e., variables reflecting the likely outcomes of the
project, such as project cost uncertainty and possibility of future work; and
46
5) Outcome variables, by which the Go / No-Go decision is made. They are
project profitability, other benefits to a firm, and overall project outcome.
3.3.2 Internationalization of Construction Firms
Crosthwaite (1998) empirically studied the internationalization of British
construction companies during the period of 1990-1996 with an emphasis on location
characteristics of these overseas business activities. He reported that the major share of
their overseas activities was conducted within developed, rather than developing, regions
and the reason was that developed countries provide a more secure environment and
involve less corruption.
Low and Jiang (2003) focused on the internationalization of Chinese construction
companies. They proposed an index system comprising of the following 5 factors to
identify the top ten “truly global” contractors:
1) Ratio of international revenue over total revenue;
2) International business distribution;
3) Overseas management structure;
4) Involvement in specialized field; and
5) Overall index of internationalization.
The study of Ofori (1996) provided viewpoints of host country governments and
local construction companies to investigate the internationalization of foreign
construction companies in association with the economic development of the host
country. It provided a conceptual model of suitable approaches that international and
local construction enterprises, and government, should adopt at various stages of
development of host countries’ construction industries to achieve mutual benefits. One
implication of the model is that foreign construction enterprises should take a long –term
47
view and consider, in their export strategies, the construction industry development
objectives of host countries.
It is important to note that none of the research studies proposed a generic
internationalization process in an individual overseas market from contractors’ viewpoint.
3.3.3
Entry Modes Examined in International Construction Literature
Although a comprehensive set of international market entry modes were not
proposed by any existing research, some entry modes were investigated by researchers in
the international construction domain, though sometimes not specifically from a market
entry perspective.
Strategic alliance
Badger and Mulligan (1995) defined an alliance as “a long-term association with
a nonaffiliated organization, used to further the common interests of the members.”
Partners of international alliances cover a variety of candidates; they can be governments,
clients, suppliers, engineering, financial institutions, subcontractors / specialty
contractors, designers, and others. Badger and Mulligan (1995) indicated that many
construction firms think it is almost impossible to penetrate new geographical markets
without forming alliances, because forming alliances with the right firm can open the
door to these markets, and it also makes the transition into new markets much easier.
Sillars and Kangari (1997) proposed a definition in a more broad sense where
alliances are strategic associations formed to further a common business interest, where
risk is shared (not shifted among partners) jointly. Although the research of Sillars and
Kangari (1997) focused on marketing consortiums and short-term joint ventures in the
Japanese construction industry, they recognized that in general industry, alliances have
four types:
48
1) Ad hoc pool, characterized as the alliance requiring the least amount of
resource input;
2) Consortium, characterized as alliances with expectations of long-term
relationships with parent resource input, but without a strong expectation for
resource output;
3) Short-term joint venture, characterized as alliances with significant resource
input and expectation to return resources (profit) to the parents;
4) Full-blown joint venture, characterized as alliances with significant resource
input and with output remaining with and reinvested in, the joint venture
(Lorange and Roos 1992).
This general typology distinguishes alliances in terms of the alliance structure and
duration, and is consistent with the definition of Sillars and Kangari (1997).
Joint Venture (JV)
A Joint Venture (JV) occurs when two or more legally separate bodies form a
jointly owned entry in which they invest and engage in various decision-making activities
(Geringer 1991). A JV is termed International JV where at least one of the parties (or
parents) is based outside the country where the venture is taking place (Geringer 1991).
Bing et al. (1999) proposed a three stage lifecycle of a International Construction Joint
Venture (ICJV): 1) Start-up, the period from initial contracts between parent companies
to JV start-up, including negotiation and a signing agreement; 2) Operation, the period of
construction work being implemented; and 3) Dismantle, the period when most
construction tasks have been completed, the project is in the clean-up stage, and the
participants start negotiating the ending matters. ICJVs can take one of three legal
forms: 1) corporation; 2) partnership; or 3) contractual / consortium.
Construction organizations have extensively used international JVs as a vehicle to
enter new construction markets around the world (Mohamed 2003). For example, in
many countries of East Asia, foreign construction companies are encouraged to enter the
local market in the form of a joint venture (JV) with local entity (Bing and Tiong 1999).
49
Previous research regarding ICJVs center on risk analysis and management (e.g.,
Bing and Tiong 1999; Bing et al. 1999; He 1992; Kwok et al. 2000; Lim and Liu 2001;
Shen et al. 2001) and venture formation (e.g., Cushman 1986; Reszka and Edwards
1997).
Build-Operate-Transfer (BOT)
International construction and contracting firms worldwide are increasingly asked
either to offer financing packages or to take equity in the projects (Tiong and Yeo 1993).
BOT provides a vehicle for an international contractor to pursue such projects.
The acronym BOT stands for “Build, Operate, and Transfer” or sometimes
“Build, Own, and Transfer”, under which the private sector enters infrastructure
development, an activity that has historically been the preserve of the public sector.
Typically, the government grants a concession to a private sector entity, a bidding
consortium or project company. In turn, the concessionaire obtains the necessary capital;
designs and constructs the infrastructure; and operates it for a certain period of time
(generally 10 to 30 years) in order to pay off the debt and earn a reasonable rate of return
from the operational revenue. The concessionaire then transfers ownership of the
infrastructure to the government free of charge or at an agreed price.
BOT is not a rigidly defined set of rules. In fact, BOT projects have different
characteristics and structures (Tiong 1990). Its key elements can be flexibly adjusted or
repackaged to a certain extent depending on the specifics of the project, sector, or
country. For this reason, BOT has many variants including BOO (Build-Own-Operate),
BOR (Build-Operate-Renewal), BOOT (Build-Own-Operate-Transfer), BT
(Build-Transfer), DBFO (Design-Build-Finance-Operate), among many others. “BOT” is
often taken as the general designation of all these acronyms (Huang 1995; Li 1998;
United Nations Industrial Development Organization 1996; World Bank 1994).
50
Many developing countries encourage foreign contractors’ participation in their
infrastructure development projects through BOT methods, e.g., the Philippines,
Malaysia, Thailand, Vietnam, China, Turkey, and India. Several multilateral
organizations are also actively promoting the application of BOT, e.g., the World Bank,
ADB, and UNIDO.
Previous research on BOT centers on 1) BOT viability (Cho 1999; Huang 1995;
Li 1998); 2) BOT risk management (Lam and Chow 1999; Li 1998; Tiong 1990; Wang
2000; Yaworsky 1994); and 3) BOT project financing (Lu 2000; Saunders 1998).
Mergers and Acquisitions (M&As)
Carrilo (2001) indicated that M&As are used within the construction context to
accelerate growth, reduce the effects of the construction cycle, enter into new markets,
and spread risk. Carrilo also reported that during the last decade, M&As were recognized
as the preferred vehicle for expansion into the global construction market.
There is disagreement on the definition of the terms ‘mergers’ and ‘acquisitions’
and they are loosely and interchangeably used by most companies (Bengtsson 1992).
They are jointly used to indicate a change in company ownership without alluding to the
conditions of the transaction. In her research on M&As in the construction industry,
Carrilo (2001) defined M&As as the friendly amalgamation of two or more companies.
Valence (2003) reviewed recent M&As activity in the international construction
industry and found a significant increase in the use of M&As since 1996. Most of these
M&As are European contractors expanding into the American and Asian markets, while
US contractors have not been active in this entry method.
Other modes
Low and Jiang (2003) indicated that most Chinese international construction
companies took the following overseas management patterns:
51
1) Local agent;
2) Representative office or liaison office;
3) Subsidiaries;
4) Joint-venture company; or
5) Branch company (solely owned).
3.3.4 International Construction Market Structure, Trends, and Future
The global construction market is a rapidly changing, increasingly competitive
environment (Carrillo 2001). It also exhibits a high oligopolistic market structure in
which a few large firms from industrialized countries are responsible for a vast majority
of contracts (Ofori 1996; Warf 1991). The past ten years saw the decline of the US share
of the market (U.S. Department of Commerce 1984) and the emergence of firms from
European and developing countries (Ofori 1996; Warf 1991), however US construction
firms as a whole still received larger quantities of foreign awards than their rivals
elsewhere (Warf 1991). Raftery et al. (1998) reported that one trend in the Asian
construction markets is the increased foreign participation in domestic construction. He
(1992) observed from archival research that the major international construction markets
are moving from the developing world to the developed countries in Western Europe,
Asia Pacific and North America.
Warf (1991) observed the changes of international construction contracts
distribution from 1979 through 1988 and explained the changes to the changing fortunes
of the petrochemical industry; regulatory and trade restriction relaxation in many
industrialized nations; and progressive integration of the Western European markets. Han
and Diekmann (2001) summarized four globalization factors in the last decade that may
expand opportunities for contractors in international construction markets: 1) all
signatory countries to the GATT (now, WTO) systematically opening their domestic
markets; 2) the development of regional Free Trade Blocs; 3) the establishment of world
52
standards; and 4) rapid developments in telecommunication, travel and other related
industries.
Bon (2000) reported the analysis results of an annual attitude / opinion worldwide
survey from 1992 through 1999 regarding the relationship between construction and
economic development, and the future of international construction. Agreement and
disagreement between the assertions and respondent rankings were analyzed. Some of his
conclusions include:
z
Future growth markets are to be located in Newly Industrializing Countries
(NICs);
z
Asia is predicted to be the principle future market;
z
The markets of South America and East and Central Europe, while
considerably smaller, are markets where future growth is expected;
z
North America is to be a potential future growth market; and
z
China and cities within China are of particular interest.
3.3.5 Other Related Topics in International Construction
Risk in international market entry
Ashley and Bonner (1987) examined the issue of political risk identification,
measurement, and management. An influence diagram based model was developed to
model the impacts of quick, unexpected changes in the political environment upon
principal cash–flow elements of international construction projects. The political source
variables in the model include: nature of firm’s operation; firm’s relationship to
government; firm’s relationship to local power groups; involvement of local business
interests; regional and external factors; influence of (independent) power groups;
nationalist attitude towards a firm; project desirability; and government policy.
53
He (1992) focused on the economic risks involved in international construction
projects. Risk factors identified from multiple sources were placed into a hierarchy of
three levels: 1) macro risks; 2) medium risks; and 3) micro risks. An Analytic Hierarchy
Process (AHP) based computerized risk assessment model was then developed.
Other major research on risk centering on the Go / No-Go issue (Han and
Diekmann 2001), joint ventures (Bing and Tiong 1999; Bing et al. 1999; Cushman 1986;
Lim and Liu 2001; Reszka and Edwards 1997; Shen et al. 2001), and BOT (Cho 1999;
Huang 1995; Lam and Chow 1999; Li 1998; Lu 2000; Saunders 1998; Tiong 1990; Wang
2000; Yaworsky 1994) were introduced in previous sections.
Ownership advantage in international market entry
Applying the eclectic framework of Dunning (i.e. ownership, location, and
internalization) with an emphasis on ownership to the international construction industry,
Cuervo and Low (2003) focused on answering two questions: 1) What ownership
advantage [/disadvantage] factors do managers with international experience working in
Singapore transnational construction corporations (STCCs) consider as the most
significant factors in engaging in foreign value-added construction related activities in
their major international construction market? And 2) How do the ownership factors vary
in significance according to the firm specific contextual variables (e.g. age, size)?
Through evaluation by surveying ASEAN and Non-ASEAN contractors, the most
important ownership advantage factors were found as: 1) information, knowledge,
technology and R&D capability; 2) the firm’s name and reputation; and 3) management
and organization capability. Different perceptions of the importance of these factors were
analyzed regarding different contextual variables (e.g., age, size, and number of
permanent offices overseas).
54
3.4 Concluding Remarks
The following points are observed from the literature review:
1) Most international market entry issues are covered within strategic
management and international business literature. There are no clear distinctions between
the two disciplines, and in fact, the market entry decision is a typical case that illustrates
the existence of overlap among them. In general, market selection, entry timing, market
selection, and entry mode selection are often discussed in international business
publications, while entry barriers tend to be examined in strategic management literature.
Although there are close and complicated interrelationships between these four major
issues (market selection, entry timing, entry mode selection, and entry barriers) in market
entry, there has been little general research that aims to integrate them. The interaction
between entry strategies and corporate organization structure also lacks attention.
2) Most international market entry literature focuses on the production sector,
especially the manufacturing industry. The service sector receives very little attention
from the academic research community, which does not match the increasingly important
role of the service sector in international trade, not to speak of the international
construction industry. Industry specific research is therefore necessary for the
international construction industry. The large amount of literature in general business
provides a starting point, however there are no perfect theories that this research can
directly borrow to fulfill the objectives of this research. A digestion of general business
theories and previous findings, and adaptation of them to the international construction
industry are therefore critical in this research.
3) The project tradition of construction management is clearly reflected in the
international construction literature. Most of the tools and methods developed focus on
decisions on a project level, like project Go / No-Go decision support tools by Han
(1999) and Messner (1994), and project risk assessment tools by Ashley and Boner
55
(1987) and He (1992). The entry decision process suggested by Han (1999) is a good
example (see Figure 3.11): a construction firm first makes a country selection and then
goes directly to the project level Go / No-Go decision – skipping the important decisions
about entry mode on the corporate level. This does not reflect reality, especially in
current days when innovative entry modes like joint ventures subsidiary and Mergers &
Acquisitions keep emerging.
4) Chinowsky and Meredith (2000) discussed the project tradition in the
construction management field and proposed the importance of strategic management
research and education in the engineering and construction industry. In the international
construction area, research on market entry strategies is especially limited. There is no
specific research on issues like internationalization of individual construction firms, entry
barriers, entry timing, entry mode section, market selection, and interaction between
organization and entry strategy, though some of these topics have been addressed in a
limited fashion in other research. It is important and necessary to bridge this knowledge
gap.
5) A hierarchy of entry modes for international construction markets has not been
proposed, while the propositions in general business cannot be directly used. The
construction industry is a service industry, so some entry modes in the manufacturing do
not apply, like export (Root 1987). In addition, because the construction industry is
project based, it involves some unique contractual entry modes, such as BOT approaches.
Therefore entry modes for international construction markets need to be specifically
defined.
3.5 Summary
This chapter introduced the primary knowledge and findings in international
business and strategy management in association with international market entry and then
56
reported previous related findings in international construction. Based on the literature
review, remarks about the importance of this research and some specific points to be
addressed in this research were developed.
57
CHAPTER 4
AN OVERVIEW OF THE INTERNATIONAL CONSTRUCTION MARKET
ENTRY
This chapter reviews the globalization process of the construction industry
(Section 4.1 and 4.2), and identifies a trend of the industry to use various and innovative
entry modes to penetrate fluctuating overseas markets (Section 4.3 through 4.5). These
entry modes can be classified into a dichotomy of permanent entry versus non-permanent
entry.
4.1 A General Review of the History of International Construction
The history of modern globalization of the construction industry can be traced
back to the end of the 1840s when British contractors first expanded their business abroad
(Linder 1994). Here the history is briefly presented in three stages: pre-World War II,
post-World War II, and the past decade (1992-2001). The timeline and major historical
event records come from Linder (1994), Warf (1991), and Wells (1996).
4.1.1 Pre-World War II period
For faster and cheaper transportation of commodities and mass production and
consumption, British overseas construction activities had to precede large-scale direct
investments overseas by British manufacturing firms. Some large British railway
construction firms rose during the early railway era and built railways overseas. By the
latter half of the 1850s, French, German, and Belgian companies had begun building
railways all over Europe (Linder 1994). Driven by the competition, some British
58
contractors expanded their business to “frontiers of economic civilization” like Eastern
Europe, Russia, Algeria, India, Canada, Australia, Argentina, and South Africa. The
international economic crisis of 1866 terminated the ascendancy of British railway
builders and it was another two decades until they reemerged as international leaders
(Linder 1994). The crisis of 1866 conferred greater power on banks, and by increasing
competition from European and US contracting firms, caused the decline of the
independent colonial railway constructors. Construction firms relied heavily on their
respective national governments to receive profitable contracts.
Despite its preeminence, British firms did not monopolize the colonial or
imperialist construction markets. French and German construction firms competed with
British firms for international railway, bridge, harbor, and canal building contracts. For
example, Gustave Eiffel’s French construction-engineering firm built bridges between
1867 and 1889 in Portugal, Russia, Greece, Egypt, Indochina, and South America (Linder
1994). German construction firms also occupied key positions in laying the groundwork
for the exploitation of Germany’s formal colonies. Between 1895 and the end of World
War I, the largest German firm, Holzmann, performed 35% of its total of one billion
marks worth of construction abroad (Linder 1994).
International orders secured the survival of some European construction firms
during the Great Depression (1930s), many of which participated in the massive
industrial and infrastructure works of the Soviet First (1928–1932) and Second
(1933–1937) Five-Year Plan (Linder 1994).
Around the turn of the nineteenth century, some European contractors entered the
U.S. market including Holzmann. World War I ultimately put an end to these foreign
contractors’ activities in the U.S. market for many years. In a more wide range, World
War I marked an interruption in the globalization of construction, especially in Europe
and the Near East.
59
The great domestic construction demand in the United States throughout the
nineteenth century made external expansion unnecessary. More over, the major colonial
powers (Britain, France, and Germany) made penetration of their colonial markets
difficult. Nevertheless, US contractors finished some projects in Latin America and Asia.
Towards the turn of the century, US firms made significant progress in construction
exports to countries like Korea, China, and Japan.
World War I (1914-1919) transformed the U.S. into a country of capital export.
This significantly increased U.S. contractors’ capability to secure projects overseas. By
the time of World War II, U.S. construction firms had developed a considerable volume
of overseas operations, however, overseas projects still accounted for a small percentage
of the average annual volume of aggregate U.S. construction.
The depression of the 1930s, when there were many governmental projects (e.g.,
Hoover Dam), strengthened some US contractors like Bechtel and Morrison-Knudsens
(Washington Group International). U.S. construction firms had acquired the expertise and
capital equipment from the leading roles played by the US domestic oil industry. A major
breakthrough towards the creation of a world construction market occurred with the
exploitation of petroleum resources in Venezuela and the Middle East. Since US oil
companies were also preeminent internationally, US contractors (e.g., Fluor) were able to
gain favorable access to overseas projects.
4.1.2 Post-World War II Period until 1992
US firms performed half of World War II (1939-1945) military construction
projects valued at $2.4 billion in countries of the British commonwealth, and also were
active in military projects in Latin America (Linder 1994). The US government provided
favorable conditions to ensure they obtained the technology, accumulated capital, and
established the governmental and private economic contracts necessary to go global. The
60
US construction firms developed into a world power by participating in the
reconstruction of Europe, and acquired projects requiring the most advanced technology
they monopolized. US funding privileged access in many other countries in the Middle
East, Asia, and Africa.
The modern globalization of the construction industry was underway with the
international economic boom in 1950s and 1960s. US firms took advantage of the
prosperousness of the petroleum and chemical industries and drew upon US domestic
industrial leadership in these sectors. US firms achieved a dominant position in these
burgeoning world markets. For example, US firms accounted for almost two thirds of the
value of world export contracts for chemical, oil, and gas plants from 1960 to 1966
(Linder 1994). In contrast, Western European firms achieved their greatest successes in
building petrochemical plants in the Soviet Union and Eastern Europe, where US firms
did not compete for political reasons, and infrastructure projects in their respective
nation-state’s (former) colonial empires. Whereas US firms secured more than one-third
of the contracts (by value) of all plants in Western Europe during this period, non-US
firms accounted for less than one percent of the contract value of plants in the US.
At the early postwar period, European and Japanese construction firms remained
busy with domestic reconstruction projects. Once-dominant British firms were not able to
speculate in overseas construction work due to a lack of capital resources. Nevertheless
European firms gradually re-expanded globally in a way shaped by the postwar
political-economic forces changed by the War. By the 1960s, the largest construction
firms in Britain and Germany were already clearly integrated into the world market.
Although they were most competitive in the traditional building and civil engineering
infrastructure projects that required a limited transfer of advanced technology, they
closed the technology gap. The reduction of US government financing for construction in
the Third World lessened the US companies’ competitiveness. This period towards the
creation of an international construction market, despite increasing entrants, was still
characterized by lower degree of competition than in other sectors like manufacturing.
61
Japanese construction firms did not perform any overseas works except for projects for
reparation and economic cooperation programs. With the end of the domestic building
boom in the mid-1960s, large Japanese firms felt pressure to enter the world market
(Linder 1994).
The construction activities in the Middle East made the intense decade-long
impulses for the modern globalization of the construction industry. The enormous
increase in revenue enabled the Organization of Petroleum Exporting Countries (OPEC)
to implement unprecedented industrial development programs. This gave rise to
numerous projects for contractors from US, Europe, and Japan, as well as South Korea, a
(former) Third World country. Korean firms succeeded in the Middle East by
underbidding Western firms by 20 to 30 percent by using cheaper labor (Linder 1994).
The OPEC boom came to an end with the onset of the world depression and the
decline in oil prices at the beginning of the 1980s. The world construction market was
further constricted by the implementation of national economic plans in some Third
World countries. The recession forced many leading global players to reduce their staff,
e.g., Bechtel discharged 22,000 of its 44,000 professionals in the mid-1980s (Linder
1994). In the absence of new contracts in the Middle East, some European firms began
buying their way into the US market (e.g., Bilfinger + Berger and Filipp Holzmann)
starting at the end of the 1970s. European firms have also acquired construction firms in
other countries as well, e.g, within Europe and in Australia. Cross-border construction
within the European Community (EC) was still limited during the 1980s because of
heterogeneous building standards and construction methods, alien labor regulations and
legal systems. Firms wishing to exploit patents or industrialized building methods were
said to prefer licensing arrangements to establishing subsidiaries. As late as 1984, for
example, the EC accounted for only two percent of the value of new British overseas
contracts (Linder 1994). However these figures significantly increased for the 1992 free
barrier trade agreement. By 1991, Europe accounted for 44 percent of new contract value;
the EC alone surpassed all of the Middle East, Africa, Asia, and Latin America (Linder
62
1994). Interpenetration has also spread to realism between the First World and the so
called Newly Industrializing Countries (like Singapore). These pressures for new markets
also raised dispute between countries like that between the US and Japan. To be more
competitive in the global market, domestic centralization of capital occurred, and so were
diversification into other sectors and assumption of financial interest in their own projects
(e.g., equity projects and BOT).
Large international construction firms competed for one another’s domestic
markets (first world interpenetration) for the fact that their domestic construction markets
are by far the world’s largest. For example, from the 1970s, Japanese construction firms
followed Japanese manufacturing, trade, and service corporations and began constructing
the latter’s factories and offices abroad, especially in the US. This interpenetration within
construction mirrors the general “inter-triad” multinational corporate investment among
the US, Japan, and the EC, which has become the most dynamic aspect of the world
economy since the 1980s.
The large capital-intensive infrastructure projects in the Third World, which were
prerequisites for the development of profitable industrial investments but not in
themselves attractive to investors, came during the 1950s and 1960s to be financed in a
large party by the International Bank of Reconstruction and Development (IBRD, or the
World Bank) (Linder 1994). The bulk of IBRD’s loans financed the construction in the
Third World of dams, power stations, highways, and ports by First World firms, making
it possible for large European and US construction firms to be “Building a Better
World-At a Profit”. However, basically, international development aid was a means of
penetration of the Third World and a kind of subsidy to US construction firms. From
1947 to 1955, most of World Bank disbursements ($1 billion) were spent in the United
States for capital equipment and services, more than the US share of IBRD financing
(Linder 1994). More regional multilateral financing organizations like the African
Development Bank, American Development Bank, and Asian Development Bank were
63
established and they launched a series of mega infrastructure projects in their respective
regions.
The prospect of numerous large and very profitable projects in the Third World
drove US, Western European, and Japanese construction firms into a phase of intense
competition, which led in turn to the intercession of individual national governments to
create the best possible conditions for their firms. For example, the US Export-Import
Bank could make loans to private borrowers, both foreign buyers and US suppliers of
construction equipment and services (Linder 1994). Nevertheless, US contractors still
complained that the support they received from their government was inadequate in
comparison with what their competitors had.
The transnational centralization of capital in the “highly oligopolistic”
international construction industry, the competitive interpenetration of the domestic
markets in the advanced capitalist countries, and the “development of a world market for
all types of construction materials all testify to the emergence of a world market in
construction.
4.1.3 The Past Decade: an Empirical Analysis
Because the data about the global construction market for recent years is readily
available, this section reports an empirical analysis mainly from a geographic market
entry perspective. The data involved in this analysis mainly comes from the ENR Top 225
International Construction Firms ranking lists and contractors’ revenue distribution from
1992 through 2001 (see Appendix E, H, I, L, M, N, and P).
64
4.1.3.1 Major Forces in the Global Construction Market
From 1992 to 2001, there were 522 different contractors that were included for at
least one year in the ENR Top 225 International Construction Firms. Their regional and
time distribution is summarized in Table 4.1
Table 4.1: Regional And Time Distribution of Leading International Contractors
(1992-2001)
Years
1~3
4~7
8~10
Total
Mean
North
America
119
42
27
188
3.6
Latin
America
7
2
1
10
3.7
Nationality of Contractors
Middle
Asia/
Europe
East
Australia
85
11
55
47
4
45
34
6
34
166
21
134
4.3
5.0
4.8
North
Africa
0
1
0
1
4.0
Central/
South Africa
Total
1
1
0
2
5.0
278
142
102
522
4.2
The following observations can be drawn from this table:
1) The regions where most international contractors come from are North
America, Europe, and Asia / Pacific. However, the ranking of the three
source regions in terms of average duration within a specific market (Asia /
Pacific, Europe, and North America) and that in terms of quantity of
contractors (North America, Europe, and Asia / Pacific) are opposite.
2) More than half of the listed contractors have their presence in overseas
markets for less than 3 years. This indicates that either it may be difficult to
sustain business in overseas markets or contractors may prefer a mobile entry
approach. North American contractors tend to lack a continuous presence
(119 out of 188 contractors had a presence for less than 3 years in overseas
markets).
These contractors, however, vary in scale of their overseas business. Figure 4.1
shows the histogram of the international revenue of those top 225 international
construction firms for the year 2001. The “oligopolistic” characteristic of the global
market (Warf 1991) is obvious: there are a few very large global construction players
65
who account for a large fraction of the market, while the rest of the market is shared by
numerous medium- and small-sized contractors.
Number of contractors
150
100
50
0
0
5000
10000
International revenue (Million US$)
Figure 4.1: Distribution Of International Contractors’ Revenue (2001)
4.1.3.2 Major Construction Markets
The global construction market can be conceptually segmented either by sector
(e.g., building, transport, and power) or geographic region (e.g., Asia, North America,
and Europe). Figure 4.2 depicts the change of size (in million US$) of different sectoral
market segments including industry / petroleum, transportation, general building, power,
manufacturing, water / sewer waste, and hazardous waste from 1992 through 2001. It can
be seen that industry / petroleum, transportation, and general building are significantly
larger than the other four segments. Also transportation and general building segments
are stably increasing while industry / petroleum features significant fluctuations.
66
International construction market segmentation 1992-2001
(by value)
80000
$ mil.
70000
60000
50000
40000
30000
20000
10000
Industriali/Petro.
Transportation
Building
Power
Manufacturing
Water/SWR. Waste
0
1992
1993
1994
1995
1996
Year
1997
1998
1999
Hazardous Waste
2000
2001
Figure 4.2: International Construction Market Segmentation 1992-2001
Because this research defines market from a geographic location (specifically,
country) perspective, the following analyses will focus on trends of markets in terms of
regions or countries. It must be noted that the data examined includes business carried out
by contractors from the same region. It is argued that in the same region, the
socioeconomic distances, as well as trade barriers, between countries are more easily
addressed by contractors from the same region. Therefore, there is a need to investigate
the intra- and inter- regional market size respectively. In this research, general market
size means the size of regional markets open to contractors from any region (e.g.,
Chinese contractors’ entry into the US, or Canadian contractors’ entry into the US).
Inter-regional market size is the market size that is open only to contractors from
different regions (e.g., Chinese contractors’ entry into the US). Intra-regional market size
is the size of a market only open to contractors from the same region (e.g., Chinese
67
contractors’ entry into the US). For a specific region, the general market size is the sum
of the inter-regional market size and intra-regional market size.
It is also important to note that because ENR changed its measurement method in
1994, it is meaningful to only look at the period from 1994 through 2001 in Figure 4.4
through 4.10.
General Market Size
The change of general market size for each region is depicted in Figure 4.3.
Market Attractiveness (General)
60,000.0
180,000.0
160,000.0
140,000.0
120,000.0
100,000.0
80,000.0
60,000.0
40,000.0
20,000.0
0.0
US$ Mil
50,000.0
40,000.0
30,000.0
20,000.0
10,000.0
0.0
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
North America
Latin America
Europe
Middle East
Aisa/Australia
Africa
Total
Year
Figure 4.3: The Trend of General Market Size (1992-2001)
The following observations can be drawn from the figure:
1) In recent years, North America, Europe, and Asian / Australia are the largest
regional markets.
2) The increasing trend of Asian / Australian market stopped in 1997, and then it
was followed by a continuous reduction in size. This may reflect the
influences of the Asian Financial Crisis in 1997.
3) The size of European markets has been very stable for the past years.
4) The North American markets have been increasing since 1997.
5) The global market size remained stable.
Intra- regional market size
68
The change of intra- regional market sizes for North America, Europe, and Asia /
Australia are shown in Figure 4.4.
Internal Market Attractiveness
30,000.0
60,000.0
25,000.0
50,000.0
20,000.0
40,000.0
15,000.0
30,000.0
10,000.0
20,000.0
5,000.0
10,000.0
US$ Mil
North Am erica
Europe
0.0
Aisa/Aus tralia
Total
0.0
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
Year
Figure 4.4: The Trend of Intra-regional Market Size (1992-2001)
The following observations can be drawn from the Figure 4.4:
1) It is apparent that the Europe and Asia / Australia Markets are by far the most
attractive areas for contractors from the same region.
2) The intra-geographic trade was increasing before 1997 in the European
Market in terms of volume. Followed the peak in 1997, there was a slight
downturn followed by a varying amount of trade. The same trend occurred in
the Asia / Australia Market, except that the fluctuations were more dramatic.
Inter-regional Market Size
The change of inter- regional market sizes for North America, Europe, and Asia /
Australia are shown in Figure 4.5.
69
US$ Mil
External Market Attractiveness
40,000.0
80,000.0
35,000.0
70,000.0
30,000.0
60,000.0
North America
25,000.0
50,000.0
Europe
20,000.0
40,000.0
Aisa/Australia
15,000.0
30,000.0
Total
10,000.0
20,000.0
5,000.0
10,000.0
0.0
0.0
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
Year
Figure 4.5: The Trend of Inter-regional Market Size (1992-2001)
The following observations can be drawn from the figure:
1) When only inter-regional trade is considered, the North America Market
seems very attractive. It surpassed the Asia / Pacific market in 2000 and
2001.
2) The European market became less attractive when considering inter-regional
trade.
3) The downside trend of the Asia / Australia Market since 1998 / 1999 is the
same as that in terms of intra-regional trade.
4.1.3.3 Firm Market Share by Regions
Another important method for analyzing the market data is to investigate the
trends of how different companies share the global market. Figure 4.6 shows the change
of quantity of work performed by international construction companies from different
regions.
70
Global Market
US$ Mil
80,000.0
180,000.0
70,000.0
160,000.0
60,000.0
140,000.0
North America
120,000.0
50,000.0
Europe
100,000.0
40,000.0
Asia/Australia
80,000.0
30,000.0
60,000.0
All other
20,000.0
40,000.0
Total
10,000.0
20,000.0
0.0
0.0
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
Year
Figure 4.6: The Sharing of the Global Market (1992-2001)
It can be seen from the figure that European contractors have the largest share in
the global construction market. Since 1994, North America and Asia / Australia based
contractors had similar shares of the market. Asian / Australian contractors had a
continuous increase of their share in global markets before 1997, but after 1997, their
international revenue decreased. North America contractors’ total international revenue
reached its peak around 1999.
4.2 Comments on the Chronological Review
The above chronological review of the globalization process of the construction
industry crystallized the rises and falls, as well as changes in distribution of major forces
in the global market. European contractors, led by British firms, first dominated the
construction market, and then they were replaced by US contractors who grew in their
domestic market and were supported by the US’s status of credit export after World War
I to go overseas. They grew significantly during World War II which opened the
traditional colonial markets of European competitors. The postwar reconstruction
program and economic, political, and technical preeminence of US firms further
enhanced the position of the US contractors. European contractors received some
recovery from global projects where US firms did not compete for political reasons and
gradual technology improvement. The Japanese contractors initially focused on their
71
large and closed domestic market. Korean contractors grew with the cooperative work
with the US Corps of Engineers.
The OPEC boom in the Middle East attracted contractors from all over the world,
and created a real global construction market. The downturn of this huge market ten years
later pushed major global players to find new markets elsewhere. The past one to two
decades saw the interpenetration of these firms within the First World, between the First
World and Newly Industrialized Countries, and within the same regions. Emerging
markets in Asia as well new entrants from this region make market entries become even
more frequent and disorderly in direction. A much wider global market has formed.
To accommodate the changes in the global construction market, new methods like
BOT, strategic alliances, and local subsidiaries through M&As keep emerging and some
of them have become common forms for market entry. Where to go and how to enter
target markets therefore become two important strategic decisions under concurrent
global market conditions. This research focuses on the second decision.
4.3 The Increasing Popularity of Permanent Entry
Market entry in the project based construction industry was believed for a long
time to be a tide like activity; e.g., contractors based in their home country headquarters
bid opportunistically for projects in overseas markets, once win it, mobilize people,
materials, and equipment to the host country project site, work on the project, and
withdraw back to home country once the project is done and there is no new project in
the host market. Ashley and Boner (1987) echoed those of many researchers (e.g.,
(Abdul-Aziz 1995):
“Multinational contractor operations abroad are project –specific; offices
and key personnel are mobilized and set up prior to construction and are
usually closed and withdrawn following project conclusion. When
72
involved in multiple projects in one country over a prolonged period of
time, the project office may acquire a greater degree of permanence and at
some point can become recognized as a branch office of the firm. It rarely,
however, develops the kind of permanence exhibited by a wholly owned
subsidiary of a typical multinational enterprise.”
Although those who summarized the above market entry characteristics like
Ashley and Boner (1987) did not deny the existence of a phenomenon that there are
entrants who establish and localize (in terms of staff, technique, and marketing) a
permanent presence in overseas markets, the style of mobile entry however, was believed
to be the mainstream of the international construction market entry strategies, at least,
before the 1980s. However, the new trend for contractors to use more permanent entry
strategies for international construction markets that started recently deserve more and
more attention.
4.4 Voices from the Industry during the Past Two Decades: A New Trend
The following citations from ENR are all about how construction firms entered
foreign markets. They are listed chronologically to illustrate a trend of the increasing use
of permanent entry modes for international construction markets:
“Strategies [to combat increased competition from third-world
construction firms] will include, according to Bernard Huvelen, financial
vice president of SGE, Rungis, France, developing subsidiaries with local
capabilities and focusing on high-technology projects” (ENR 1981).
“Nicolas Bouygues, Director of International affairs: “You must be
American to work in North America,” he says, explaining why his firm is
looking for a U.S. acquisition or partnership” (ENR 1982).
“John Metzner, commercial manager of Costain International, Inc.,
London: There is a growing tendency to go local; companies are setting up
73
regional offices to keep their eyes on prospective work, bid and manage
projects” (ENR 1982).
“Shinobu Yano, managing director of OCAJI: fiscal year 1988 was a
turning point for Japanese builders working overseas, because of the
acceleration of world wide localization. The tendency was particularly
noticeable in the U.S, according to Yano. OCAJI figures show that early
half of the US work reported by its member in 1988 was won by local
subsidiaries, compared with 29% in 1987 and 27% in 1986. The recent
agreement that will give Tobishima Corp. an 8% stake in a major U.S.
contractor, George A. Fuller Co., will push the percentage even higher in
1989” (ENR 1989).
“Lindemann Holzmann: “Going overseas with a lot of expatriates is no
longer competitive, even though there are still big projects which have to
be done this way.” …This particularly is true in less sophisticated markets
where aid remains a key to major contracts” (ENR 1990).
“Eugene McGovern CEO, Bovis international Ltd., London: “We take the
philosophical position that we do not want to be an expatriate organization
in [these] countries” (ENR 1990).
“Hisashi Tsukamto, general manager of Kajima Corp. Tokyo,
“Construction know-how varies from country to country,” so Kajima has
progressively localized its overseas operations” (ENR 1991).
“Stephen P. Darnell, Vice President, FMI, Management Consultants,
Denver: “The word in our industry is that consolidation and globalization
through foreign investment will play a major role” in doing business. A
decade a go, there was virtually no foreign ownership of U.S. construction
firms. Today, 15 of the largest 100 contractors on ENR’s Top 400 list are
totally or partially owned by foreign investors. FMI estimates that more
than 50% of these investments are controlled by European companies, led
by the British with 30%. France, Germany and Finland also are big
investors with a total of 26%. Japanese firms control 13%. The trend likely
will continue as the market becomes globalized” (ENR 1991).
74
“Roberto Dias and Cesar A. Velosa de Castro, directors of Odebrecht,
Braizl: There are few get-rich-quick avenues left in the business. He
cautions contractors that expect to come into a country for “a quick
windfall profit and then get out again.” Odebrecht’s approach on entering
a new market is “patient establishment of a solid and enduring working
relationship,” usually through local partnerships” (ENR 1994).
“Herbert Bodner, Chairman and chief executive of Bilfinger + Berger,
Germany: A decade ago, it was still possible to function from headquarters
in overseas markets, but the international business is becoming a more
domestic business in other countries” (ENR 2000).
“Keith Clarke, chief executive of Kvaerner Construction Ltd., London:
agrees that it is becoming more difficult to work from home. “We are
decreasing the amount of projects we export from the U.K.,” he says. “We
are more interested in being local in a number of areas.”” (ENR 2000).
“Sweden’s Skanska AB, is becoming increasingly local, largely through
mergers and acquisitions. “Our strategy is to grow in regions and
markets…where we see good opportunities for the future and where we
see good companies [to acquire],” says Per Westlund, executive vice
president” (ENR 2000).
“Hanno Bastlein, head of international work, Hochtief: like others,
increasingly relies heavily on local partners and subsidiaries, handling
only special projects form home. “Then it makes sense to move
expatriates.”” (ENR 2001).
“Tyler, Balfour Beatty: For many firms, the days of routinely bidding
foreign mega-projects from home are all but gone. Balfour Beatty, for
example, still has a share in a Swiss Alpine tunnel, but “there are very,
very few such projects.” Skanska has replaced opportunistic bidding with
large international build-operate-transfer (BOT) jobs, and it is not alone”
(ENR 2004).
75
These quotes from international construction industry leaders, presented in a
chronological manner, reveal a significant tendency that permanent and localized foreign
subsidiaries and partnerships are becoming more important institutional settings to access
foreign markets, while temporary opportunistic bidding (or mobile entry) has gradually
faded out with the decreasing number of mega-projects and globalization of the
construction industry. Contractors tend to use foreign subsidiaries, sometimes
complemented by headquarter participation and support, to penetrate selected markets to
meet the changing conditions of international construction markets. However this does
not mean that the project by project entry (mobile entry) is disappearing (as the analysis
in Section 4.5 will indicate). The current status of the international construction arena is
in fact a mix of these two generic market entry modes: permanent entry and mobile entry.
The difference between permanent entry and mobile entry in operation can be
illustrated by adapting the value chain tool suggested by Porter (1980), which models the
firm as a chain of value-creating activities. The value chain divides the operations of the
firm into a series of discrete activities, which can be grouped into either primary activities
and support activates. Miles (1995) adapted Porter’s model which is based on the
operations of a manufacturing firm to suit the special conditions of the project based
construction industry, and in his conceptualization the value chain for construction has
two parts: 1) support activities and 2) project operations (see Figure 4.7). Support
activities include ongoing firm infrastructure (e.g., corporate strategic planning and
control), human resource management, technology development, and procurement;
project operations include marketing and bidding, project specific planning, inbound
logistics (e.g., project specific purchasing and subcontracting), operations (i.e.,
construction), and commissioning in the sequence of a typical project life cycle.
76
Margin
Commission
ing
Operations
Inbound
logistics
Planning
Marketing
and bidding
Figure 4.7: The Generic Value Chain of Construction Projects (Source: Miles 1995)
In different entry modes, the activities are geographically located in different
ways. In permanent entry, the entrant establishes a permanent organization (office or
company) in the host market to carry out both (partial) support activities and discrete
project operations; while in mobile entry, the entrant uses a temporary project office
(sometimes, temporarily incorporated) as the unit to carry out both project operations and
(partial) support activities in the host market (see Figure 4.8). In both generic entry
modes, some support activities like human resource management and technology
development can be carried out by the headquarter based in the home country.
Figure 4.8: Comparison Between Mobile Entry And Permanent Entry
This approach to differentiating between permanent entry and mobile entry by
speculating whether there is a permanent organization in the host market carrying out
support activities implies that entrants using permanent entry will keep their presence and
77
carry out support activities like human resource management, while entrants using mobile
entry will pause their support activities, lay off their local employees, and leave the
market.
Some other differences between permanent entry and mobile entry cannot be
illustrated by the value chain tool. For example, in permanent entry, the entrants tend to
localize staffing and marketing and focus on local projects. In mobile entry, more
expatriates are sent overseas and large international projects (e.g., World Bank projects,
projects invested by allied owners, or technically complicated projects that host country
cannot complete) are targeted.
The following section, by using empirical data, will further investigate the
differences between permanent entry and mobile entry.
4.5 An Empirical Investigation of the Mobile Versus Permanent Entry Dichotomy
In the database developed in this research, there are only 33 contractors (see
Appendix K) who reported the exact time when they established subsidiary, branch or
other modes of permanent entry for specific foreign markets. Although this limited data
was not randomly chosen, it is still relatively representative of major international
contractors in terms of firm size and geographic distribution (see Table 4.2), and can be
used to show the trends regarding international construction market entry.
78
Table 4.2: Contractors Investigated for Mobile Entry Versus Permanent Entry
Company
Besix
Bilfinger
Bovis
China Harbour
Chiyoda
Clough
CSCEC
CTCI
Daewoo
Daewoo Engineering
EEI
Ferrovial
Foster Wheeler
Fujita
Hchtief
Hyundai
Jacobs
JGC
Joannou
Kajima
Kinden
Leighton
McConnell
Ohbayashi
POSCO
Shimizu
SK
Ssangyong
Taikisha
Takenaka
Tractebel Engineering
Wuyi
You one
Code
24
25
29
40
65
232
58
78
79
80
235
107
95
1000
115
117
124
125
126
243
129
134
139
148
258
171
263
177
183
185
207
63
2000
Country
Belgium
Germany
UK
China
Japan
Australia
China
Taiwan
Korea, South
Korea, South
Philippines
Spain
USA
Japan
Germany
Korea, South
USA
Japan
UK
Japan
Japan
Australia
Australia
Japan
Korea, South
Japan
Korea, South
Korea, South
Japan
Japan
Belgium
China
Korea, South
Internatinal revenue
Global revenue
Highest ranking
(average 1992-2001) (average 1992-2001)
in 1992-2001
409.68
692.86
49
2360.16
4493.08
9
2905.89
3950.44
6
501.84
1763.75
39
1497.90
2597.69
8
124.40
339.00
90
1060.92
4129.04
19
43.14
309.22
125
615.46
2459.17
30
25.60
106.42
169
21.73
109.60
139
1502.00
3338.50
5
2324.80
3467.68
5
#N/A
#N/A
#N/A
3944.61
7314.59
1
1394.70
3917.66
12
699.82
3928.56
23
1620.76
2306.31
14
670.03
670.03
27
1373.00
11791.00
18
136.26
4414.18
86
435.40
1765.50
37
213.60
278.65
77
1091.80
11975.64
18
110.84
946.44
80
956.17
13569.52
25
696.83
1504.30
33
262.29
1291.14
61
440.89
2562.90
47
772.02
11224.41
33
103.38
146.55
89
89.70
136.63
121
#N/A
#N/A
#N/A
From Figure 4.9, it is observed that the sampled construction firms have
increased the use of permanent entry since World War II, and most permanent entries
occurred in the 1980s and 1990s. This is consistent with the aftermath of the OPEC
construction boom.
Number of permanent entry occurence
79
60
50
40
30
20
10
0
1900
1950
2000
Year
Figure 4.9: Chronology of Permanent Entry
The frequency of the use of mobile entry strategy has been very stable during the
past two decades except 1980 and 1998 (see Figure 4.10). Some contractors may have
entered certain foreign markets with mobile entry modes before 1980, but these entries
are counted as if they happened in 1980 in data collection. That explains why there is a
large entry number in 1980. A contractor with 61 overseas markets, Trectebel
Engineering, was first included in the Top 225 International Construction Firms list in
1998 by ENR, making this year’s entry number look abnormal. Disregarding the
problems encountered in data collection, it can be seen that there has been a relatively
stable frequency of the use of mobile entry strategy for the past two decades.
Number of mobile entry occurence
80
100
50
0
1980
1990
2000
Year
Figure 4.10: Chronology of Mobile Entry (1980-2001)
Some contractors established permanent organization before they acquired some
contracts in overseas markets. The established organization can facilitate marketing, but
can not ensure work is performed immediately. This time lag between permanent
residence and first work is distributed as in Figure 4.11 based on the dataset. It is a
triangular distribution skewed to the left, indicating most contractors can acquire job
shortly after they establish their residence. Because ENR survey respondents may just
report significant revenue from overseas markets, the real lag time may be even shorter.
However, in some extreme examples the lag time can be very long. For example, Fluor
Daniel established a representative office in Indonesia in 1975 but acquired a significant
project in 1987 (ENR 1987).
81
25
Frequency
20
15
10
5
0
-20
-18
-16
-14
-12
-10
-8
-6
-4
-2
0
Time lag (years)
Figure 4.11: Distribution of Time Lag between Permanent Residence Establishment and
First Business Implementation
Before establishment of permanent residence, some contractors may test an
overseas market by pursuing projects on a contractual basis, or in some cases, entrants
identify long term benefits for having a permanent residence after completing some
projects on a contractual basis. This testing time is also a triangular distribution skewed
to the right as shown in Figure 4.12 . This indicates that for many firms, this time is
short.
82
50
Frequency
40
30
20
10
0
0
10
20
Testing time (years)
Figure 4.12: Distribution of Testing Time from the First Project and Establishment of
Permanent Residence
With permanent entry, a contractor has an advantage to establish better local
networks and gain more local knowledge and expertise than under mobile entry.
Therefore permanent entry may lead to more local projects than mobile entry. This study
measures this effect with an index, “continuity”, which is the number of years that a
contractor had revenue from a specific market from 1992 through 2001. The highest
value of continuity is 10, indicating that the contractor always had projects to work on
during the ten years of study; the lowest value is 0, indicating that the contractor did not
have work in the geographic during the ten years. A two sample t test was conducted to
test the following hypotheses:
H0: Permanent entry and mobile entry involve the same amount of continuity;
H1: Permanent entry involves a larger continuity value than mobile entry.
83
Minitab is used to analyze the data developed in this research (see Appendix I and
M), and the result is as follows:
N
Mean
StDev
SE Mean
Mobile entry
896
4.85
4.56
0.15
Permanent entry
330
7.98
6.37
0.35
Difference = mu Mobile entry - mu Permanent entry
Estimate for difference: -3.128
95% CI for difference: (-3.879, -2.377)
T-Test of difference = 0 (vs not =): T-Value = -8.18
P-Value = 0.000 DF = 458
Because the P-value (0.000) is less than 0.05, we can reject H0 and conclude that
contractors using permanent entry have a larger business continuity in the market than
those using mobile entry. This however does not mean that permanent entry is superior to
mobile entry (this issue will be analyzed in Chapter 8). Although continuity reflects
business sustainability and possibly profitability to some extent, it cannot measure all
different effects (e.g., risk exposure and flexibility). The different effects between
permanent entry and mobile entry will be further discussed in Chapter 6.
4.6 Summary
A review of the globalization process of the construction market explained why in
recent and current conditions market entry mode selection is a critical decision issue for
both seasoned and future international construction firms to survive and grow. Both
industry practitioners’ opinions and empirical data indicate that international contractors
are faced with a dichotomical selection between permanent entry and mobile entry, two
generic market entry modes differing significantly in operational characteristics. Their
difference in business continuity was analyzed. This dichotomy as well as the lower level
basic market entry modes within each will be further examined in the next chapter.
84
CHAPTER 5
ENTRY MODE DEFINITION
This chapter first introduces the methodology for entry mode definition (Section
5.1), and then defines and characterizes each basic entry mode (Section 5.2). The
definitions are then evaluated by a survey (Section 5.3). Finally, these entry modes are
examined regarding their compatibility (Section 5.4) and transferability (Section 5.4)
among each other, and applicability regarding different geographic markets (Section 5.5).
5.1 Methodology
Entry mode is an institutional arrangement that makes possible the entry of a
company’s products, technology, human skills, management or other resources into a
foreign country (Root 1987) . An entry mode defines “how” an entrant enters a foreign
market, by abstracting the pattern of institutional settings to support the entry process. It
is not only a legal definition, but functional definition as well. For example, some
contractors form a joint venture with local partners to purse targeted projects. This JV,
legally a corporation or partnership where two or more parties contribute equity and share
liabilities, can be different in function. It can be a temporary legal entity created just for
one specific project (so called “contractual JV” or “consortium”) so that it is liquidated
once the project is completed, or it can be a permanent organization so that even in short
of work, the joint venture will retain its personnel and physical assets and keep pursuing
new projects. This difference in either legal or functional dimension may depend upon
the strategic perspective of the entrants regarding the target market and their internal and
external environment at the time of entry.
85
It is not appropriate to create new definitions for entry modes for the construction
industry unless there is no specific existing definition, since many modes are well
understood and extensively cited by practitioners and academics in industries including
construction. What has not been performed is to sort them on a general framework to suit
the characteristics of the construction industry. The product of this effort, a taxonomy of
international construction market entry modes, can provide a framework with which
practitioners can comprehensively understand their strategic options available regarding
“how to enter a selected market” and select the optimal mode.
The entry modes that have been examined in international business literature
include wholly owned subsidiary / sole venture (new establishment or acquisition), equity
joint venture (majority, equal, or minority), licensing / franchising, R&D contract,
alliances / contractual joint venture, export (direct or indirect), contract management,
international lease, counter trade, representative office, branch office / company and
others (Agarwal and Ramaswami 1992; Andersen and Gatignon 1986; Erramilli and Rao
1990; Erramilli and Rao 1993; Luo 1999; Pan and Tse 2000). In some papers (e.g., Kogut
and Singh 1988), Mergers & Acquisitions were taken as an entry mode, but in others (e.g.,
Pan and Tse 2000), it is regarded as a method to form an entry mode like equity joint
venture. This research takes the perspective of the latter. Regarding each of these entry
modes, cases were collected from the construction industry through interview surveys
and literature reviews (e.g., academic journals, industry journals, books, and various
news sources) (see Appendix T). Sometimes, no cases could be collected regarding
certain entry modes because these entry modes either do not exist, like export (Root 1987)
or are not common in the construction industry. Cases that involve patterns of entry that
could not be matched by any well defined entry modes were also collected, like those
cases about BOT / equity project and local agent. Some cases involved more than one
entrant and / or mode. For example, when two firms form a strategic alliance as well as
joint venture project to enter a foreign market, we count this case as four entry case
studies. That is to say, each case only involves a single entrant entering an overseas
market with a single entry mode. In this way 94 detailed and typical cases are
86
summarized in Table 5.1. They are classified into 9 categories corresponding to 9 basic
entry modes.
Table 5.1: Sampled Market Entry Cases for Entry Mode Definition
Code
Entry mode
Description
Code
Entry mode
Description
SA01 Str. alliance
Groundwater + Kruita -> Japan
JV06 JV company
Skanska + local firm -> Czech
SA02 Str. alliance
Bechtel + North West Water -> world
JV07 JV company
Skanska + local firm -> Germany
SA03 Str. alliance
Bechtel + North West Water -> world
JV08 JV company
Raytheon + local firm -> Middle East
SA04 Str. alliance
Fluor Daniel + Hitachi ->Japan
JV09 JV company
Bechtel + CITIC ->China
SA05 Str. alliance
Morrison Knudsen + SPT -> Russia
JV10 JV company
Taisei + CSCEC -> China
SA06 Str. alliance
Morrison Knudsen + SPT -> Western
JV11 JV company
Singapore firms -> Russia
SA07 Str. alliance
Bechtel + Pipe Line System -> world
JV12 JV company
Singapore firms -> Russia
SA08 Str. alliance
Bechtel + Pipe Line System -> world
JV13 JV company
China Harbor -> Singapore
SA09 Str. alliance
BEJK + DuPont -> USA
JV14 JV company
SMEC + local firms -> China
SA10 Str. alliance
BEJK + DuPont -> Outside USA
JV15 JV company
PG&E + Bechtel -> world
SA11 Str. alliance
Jacobs + Wimpey -> world
JV16 JV company
Turner + Steiner -> world
SA12 Str. alliance
Jacobs + Wimpey -> world
JV17 JV company
Turner + Steiner -> world
SA13 Str. alliance
Skanska + Coca-Cola -> world
JV18 JV company
BE&K + Polar -> Latvia
SA14 Str. alliance
Bovis Lend Lease + BP -> world
JV19 JV company
BE&K + Polar -> Latvia
SA15 Str. alliance
Bechtel + Wireless Facilities -> world
SV01 SV company
Bechtel -> Japan
SA16 Str. alliance
Fluor Daniel + AMEC ->world
SV02 SV company
Rust -> Hong Kong -> Mainland China
SA17 Str. alliance
Fluor Daniel + AMEC ->world
SV03 SV company
Rust -> Australia
SA18 Str. alliance
SV04 SV company
China Harbor -> Singapore
SA19 Str. alliance
Bechtel + Korea ->Korea
Beacon + Dioguardi -> USA
SV05 SV company
Black&Veatch + Thames -> world
SA20 Str. alliance
Beacon + Dioguardi -> Europe
SV06 SV company
Hochtief + Turner -> USA
SA21 Str. alliance
Fluor Daniel + Ohbayashi ->Japan
SV07 SV company
Skanska -> USA
SA22 Str. alliance
Parsons + Shimizu -> Japan
SV08 SV company
CSCEC -> USA
PP01 BOT/Equity
Bovis Lend Lease -> China
SV09 SV company
Shimizu -> Taiwan
PP02 BOT/Equity
Hopewell -> Mainland China
SV10 SV company
Kumagai Gumi -> Taiwan
PP03 BOT/Equity
PG&E+ Bechtel -> world
SV11 SV company
SembCorp -> Malaysia
PP04 BOT/Equity
PG&E+ Bechtel -> world
RO01 Rep. office
Fluor Daniel -> Indonesia
PP05 BOT/Equity
Hopewell -> India
RO02 Rep. office
Bechtel -> China
PP06 BOT/Equity
Rolls-Royce -> India
RO03 Rep. office
Shimizu -> Taiwan
PP07 BOT/Equity
Obrascon -> Argentina
RO04 Rep. office
Fujita -> Peru
PP08 BOT/Equity
China Road&Bridge -> Romania
RO05 Rep. office
SembCorp -> Middle East
PP09 BOT/Equity
Daewoo -> Laos
RO06 Rep. office
CTCI -> Malaysia
PP10 BOT/Equity
BE&K + Polar -> Latvia
RO07 Rep. office
Shimizu -> USA
PP11 BOT/Equity
BE&K + Polar -> Latvia
RO08 Rep. office
CSCEC -> Korea, South
PA01 JV project
Fluor Daniel + Duke -> Indonesia
RO09 Rep. office
Obayashi -> USA
PA02 JV project
Ohbayashi + subsidiary -> USA
BO01 Branch office
Austin -> Japan
PA03 JV project
Texas Engineers ->Thailand
BO02 Branch office
Shimizu -> Singapore
PA04 JV project
Maeda + local firm -> Taiwan
BO03 Branch office
CSCEC -> Thailand
PA05 JV project
Brown & Root -> world
BO04 Branch office
Shimizu -> Taiwan
PA06 JV project
Brown & Root -> Mexico
BO05 Branch office
Obrascon -> Argentina
PA07 JV project
Raytheon -> Middle East
BO06 Branch office
Hochtief -> Brazil
PA08 JV project
Bouygues + Blount -> Middle East
BO07 Branch office
CSCEC -> Korea, South
PA09 JV project
Bouygues + Blount -> Middle East
BO08 Branch office
SembCorp -> Eastern Europe
JV01 JV company
Black&Veatch + Tarmac -> world
LS01 Licensing
Daewoo -> Taiwan
JV02 JV company
Black&Veatch + Tarmac -> world
LS02 Licensing
Kumagai Gumi -> Hong Kong
JV03 JV company
Dragados + loca firm -> Middle East
LS03 Licensing
TSUKISHIMA KIKAI -> China
JV04 JV company
JGC + M.W.Kellogg -> Middle East
LA01 Local agent
BGP Inc. -> Indonesia
JV05 JV company
Dematteis + local firms -> China
LA02 Local agent
BGP Inc. -> Oman
Case descriptions have a uniform format: firm A (+ firm B) -> market C. Here
“+” means formation of alliance or joint venture; “->” means entering; ( ) means possible
87
occurrence of a partner(s). Some entry cases have exactly the same description, because
either 1) two companies formed a JV company, JV project, or strategic alliance to enter
the same market (e.g., JV 01 and JV02); or 2) one company used more than one entry
mode simultaneously (e.g., RO08 and BO07) or sequentially (e.g., JV13 and SV04).
Cases under the same category were compared to find the common and unique
characteristics of each entry mode in accordance with the category in collaboration with
definitions and characterizations reported from literature. To map and analyze the
relationships between different entry modes and between different participants and entry
modes, and show whether an entry mode involves immediate business / project
implementation, a graphical tool (see Figure 5.1) for content analysis of cases was
developed.
Figure 5.1: Content Analysis Tool for Each Case Study
88
The graphical tool (protocol) incorporates different entry participants, 9 basic
entry modes, a symbol indicating whether a company is established through M&As, and
a symbol indicating project implementation. The number in brackets indicates the number
of the occurrence of 1) participants, 2) entry modes, and 3) project implementation
individually by counting all the cases under the category corresponding to a specific entry
mode. The number in the black box shows how many JVs or SVs are formed with
Mergers & Acquisitions. The arrows between these factors indicate the real (in solid line)
or potential (in dashed line) coexistence of linked factors in cases. For example,
Figure 5.1 would describe the following case: a US based contractor formed a new JV
company in Hong Kong with a local partner to secure infrastructure development projects
in mainland China. Soon, this JV company signed a BOT concession agreement with a
provincial government for a water supply project, and then established a new joint
venture project company with one of the local state owned utility companies to
implement the project. The dashed line means that the HK-based JV company can
potentially implement any projects in HK or mainland China.
5.2 Basic Entry Modes for International Construction Markets
The general settings, formation process, merits and demerits, as well as possible
variances under specific conditions for each basic entry mode are presented and discussed
in this section.
5.2.1 Strategic Alliance (SA)
A strategic alliance is a long-term inter-corporate association without an affiliated
organization based on trust and a mutual respect for each participant’s business needs,
used to further the common interests of the members that can include customers (e.g.,
SA13), governments (e.g., SA18), suppliers (e.g., SA01), engineers (e.g., SA04),
financial institutions, and other contractors (e.g., SA16). According to the position of
89
partners in the supply chain systems, a strategic alliance can be either horizontal when
partners are on the same level (e.g., between contractors like SA11 and SA16), or vertical
when partners are on different levels (e.g., between owner and contractor like SA09 and
SA13). An entrant can form a strategic alliance with local firms (e.g., SA01, SA18, and
SA22), firms from another country (e.g., SA7 and SA11), or firms from its own country
(e.g., SA13 and SA16) (Tse et al. 1997).
Within a strategic alliance, firms agree to share resources, technology, profits,
projects, and supplement each others’ needs for a long period of time. Unlike JV
company, a strategic alliance does not involve an incorporated subsidiary, affiliate, or
partnership; It is for a long term cooperation or a group of projects (e.g., SA14 and
SA19), which is different from a joint venture project that is for a specific project(s). In
general a strategic alliance can help entrants to reduce investment risks, share technology,
improve efficiency, enhance global mobility, and strengthen global competitiveness (Tse
et al. 1997). An alliance with a local partner can help to obtain the construction permit
and get acquainted with local construction codes and market conditions like labor
availability and competitor information (Badger and Mulligan 1995). The reasons for a
foreign firm to form a strategic alliance with another foreign firm include risk sharing,
resource pooling, asset protection, and the ability to react quickly to market changes (Tse
et al. 1997). In SA19 and 20, Beacon and Dioguardi felt that a strategic alliance provided
a means for medium-size construction firms to explore international projects while keep
them private.
In general, there are four stages within the strategic alliance formulation process
(Pietroforte 1996):
1) Capability study and validation. Mutual understanding is normally
established in previous work cooperation experience (most cases in the
database). Existence of complementary capabilities and recourses is an
important condition to form strategic alliance.
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2) Initiation. Companies that have had working cooperation may provide the
initiatives to forma strategic alliance. Sometimes owners can issue a RFP for
alliance partners (SA13); or a strategic alliance can be initiated by incumbent
contractors (SA01).
3) Negotiating alliance conditions and sometimes documenting it in contract,
agreement or memorandum of understanding (most cases). Simple and non
exclusive agreements are used while oral contracts work in Asia and Europe.
Measures are set to avoid overlap and competition. For example, in case
SA11 and SA12, Wimpery’s marketing group will pursue European-based
clients while Jacobs will pursue U.S.-based clients. In addition, a prospect
reporting system was centralized to eliminate dual pursuits in SA11 and
SA12. An alliance may be effective only for a fixed period of time (e.g., five
year term in SA13).
4) Operating and enhancing the alliance. A task force, e.g., management
committee, can be established to coordinate alliance activities.
However, Step 1) and 2) can be switched. In SA19 and 20, the two companies signed a
strategic alliance agreement before they identified the complementation between them.
A strategic alliance does not directly lead to work implementation, but can
facilitate potential projects or other entry modes (see Figure 5.2). A strategic alliance is
always applied in connection with other entry modes like joint venture project (21 of 23
cases), Licensing (2 out of 23 cases), and joint venture company (2 out of 23 cases). SA
is used to enter not only a specific country (12 out of 23 cases), but also a wide range of
markets (11 out of 23 cases) or sometimes niche markets in a select group of markets
(SA02, SA03, SA04, SA07, SA08, and SA15). Some strategic alliances between
contractors (horizontal alliance) involve a mutual entry, that means each partner enters
the other’s traditional markets under the alliance arrangement (Case SA2, SA4, SA5,
SA6, SA7, and SA8). The arrows between participants and entry modes in Figure 5.2
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mean that in many cases, the formation of a strategic alliance can trigger other entry
modes like JV project, licensing, and BOT / equity projects.
Figure 5.2: Relationship Mapping for Strategic Alliance
5.2.2 BOT / Equity Project
International construction and contracting firms worldwide are increasingly asked
either to offer financing packages or to take equity in projects (Tiong and Yeo 1993). A
BOT or equity project provides a vehicle for an international contractor to pursue such
projects. About 60% of contractors surveyed by ENR (1986) indicated that they had
submitted one or more offers during 1985 which called for the bidder to arrange major
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financing for the project, and 60% of these were successful in winning one or more such
contract in 1986. These contracts were worth a total of about US$6 billion. An ENR
paper in 1992 cited an industry veteran’s estimate that Bechtel, either directly or
indirectly, helped secure financing on nearly 50% of its international work in 1991.
In a BOT project, typically, the government grants a concession to a private sector
entity, a bidding consortium or project company. In turn, the concessionaire puts up the
necessary capital, designs and constructs the infrastructure, and operates it for a certain
period of time (generally 10 to 30 years) to pay off the debt and earn a reasonable rate of
return from the operational revenue. The concessionaire then transfers ownership of the
infrastructure to the government free of charge or at an agreed price. BOT is not a rigidly
defined set of rules, but has different characteristics and structures (Tiong 1990). “BOT”
or “Public Private Partnership (PPP)” is often taken as the general designation of many
variants. Roughly speaking, Private Finance Initiative (PFI) can be a UK version of BOT
or PPP. Whatever it is called, the BOT / PPP / PFI perspective emphasizes the
combination of the complementary skills and resources of public agencies and private
parties to achieve a win / win result. A traditional construction firm can be the
concessionaire or just a partner of the project company in a BOT project. It is also the
contractor responsible for facility construction, normally under a turn key contract.
Therefore, the construction firm takes a dual role as both owner and contractor in such an
arrangement. .Although becoming increasingly important in winning work, BOT projects
involve high development costs and sometimes have to be managed for many years.
An equity project is not a well defined term, but represents an arrangement where
a contractor is asked to take equity in the project bid, no matter whether the project is a
privately funded or privatized public project under the BOT approach. For example, a
contractor may take equity in a project which is mainly funded by a petroleum company
and does not involve any concession grant from the local government. In this sense, an
equity project is a broader concept than BOT from the perspective of international
contractors.
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In BOT / equity project, contractors’ funds mainly come from themselves, their
own government, or commercial banks. Other sources of financing were barter and
counter trade, development bank, and funds provides by the government of a
third-country joint venture partner.
BOT / equity project is often linked with another entry mode, like joint venture
project (7 out of 11 cases), which normally involves a project specific company with
limited liability and legal person status (see Figure 5.3).
Figure 5.3: Relationship Mapping for BOT / Equity Project
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5.2.3 Joint Venture (JV) Project
Nowadays, it is nearly impossible for contractors to do business overseas without
assistance. Joint venture on a project basis, or sometimes called consortium, contractual
joint venture, or contractual alliance is very common in international projects. It is a
vehicle in which profits and other responsibilities are assigned to each party according to
a contract. These do not necessarily accord with each partner’s percentage of the total
investment. The partners also have the option of forming a limited liability entity or
partnership with legal person status, similar to that of a JV company, but this entity only
exists for this specific project. There are two types of JV project: the integrated and
non-integrated (Sridharan 1994). In an integrated JV project, staff from different partners
are seconded to the joint venture and a single project team is created. The partners take
joint responsibility for the profit or loss made on the project. In a non-integrated JV
project, partners are responsible for planning and executing their own portion of work as
well as the profit and loss made from their portion of the work.
A JV project can ensure that the company has flexibility and mobility in the
foreign market, and other advantages of a JV project include cost saving by using
overseas partners’ infrastructure and liability limitation. They are sometimes mandated
by local laws or owners. Despite the dismantle of some market barriers against
establishing permanent local presence, Brown & Root kept using JV project to pursue
and carry out projects in Mexico (PA06). However it is difficult to find the right partner
who is technologically progressive and compatible with an entrant’s business purpose,
and politically savvy locally. International contractors can form JV project with local
firms (five out of 10 cases) or firms from the same region (e.g., in PA01, Fluor formed a
JV project with two Japanese firms to pursue an Indonesian project) or other international
contractors (e.g., in Case PA08, Bouygues from France formed a JV project with Blount
from the US to pursue a project in the Middle East), or some or all of them (e.g., PA05)
to carry out a project. Sometimes an international contractor can form a JV project with
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its subsidiary in the same market. For example, in PA02, Obayashi and its US subsidiary
(Obayashi America) formed a joint venture to carry out the Kudos Tunnel project.
The process to form a JV project can be very simple. In Case PA08, Blount was
following a project, and then they received a call from Bouygues to ask them if Blount is
interested in joining them, although the two companies did not have prior work
experience together. Blount sent a person over and they worked out the agreement. With
a JV agreement, Bouygues was the sponsor with 55% participation and was able to select
senior project and site mangers from its personnel and adopt the hierarchy in accordance
with Bouygues’ principles. Blount furnished their share of the supervisory staff. Heading
the team would be a project manager, a Bouygues manager. The number two person in
charge would be a Blount manager. The joint venture had a separate management board
that met periodically – once a month for the first year or more often if necessary. The
board, however, had equal representation, two people from each company. English was
used on the job by management.
JV project and project partnering are different concepts, but they can be used
together. In PA05, Brown & Root pioneered the partnering concept on its international
projects based on a JV project. A facilitator, much like that used in partnering, will help
build the team, set goals, and build trust. In an alliance relationship, the owner usually
selects the program manager or engineering contactor. The owner and program manager
select the other participants, and as others come on board, they sit in on evaluations of
subsequent members. In this way, the organizations are totally integrated.
Figure 5.4 depicts the relationships between JV project and other entry modes. It
shows that in most cases, a JV project can be independently used to implement overseas
projects. Representative office and SV company could be integrated with a JV project
(e.g., PA02).
96
Figure 5.4: Relationship Mapping for Joint Venture Project
5.2.4 Representative Office (RO)
Although technically not considered a form of Foreign Direct Investment (FDI), a
representative office is a quick and relatively simple way to establish a formal presence in
the host country and become acquainted with a target market. A representative office,
although normally prohibited from engaging in direct, profit-making business activities,
can do business communications, product promotion, market research, contract
administration, and negotiations on behalf of their head office and other such
non-commercial activities. The most apparent advantages the representative office has
over other entry modes are its simplicity and flexibility. Closing a representative office is
also relatively easy compared to terminating a joint venture. There may be minimum
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capital requirements and local participation rules for a foreign invested subsidiary, but
these are not applicable for a RO. However, regulatory and start-up costs can be
expensive.
Flexibility of a RO is illustrated in Case RO02. In this case, the inflation of the
early 1980s made Bechtel consolidate its four expatriate office in Beijing into one and
gave him additional assignments outside the PRC. Bechtel also gave up the lease of a
large house it had occupied in Beijing. Establishment of a representative office does not
mean immediate work to be performed. In Case RO01, Fluor opened an office in
Indonesia in 1975, but did not get a significant project until 1987. A representative office
can not only facilitate the pursuit of business on a project basis (RO01) but also can be
upgraded into a branch company (RO03) or subsidiary (RO06 and RO07). The case of
SembCorp (RO05) demonstrates that a direct establishment of a RO may not be
necessary. In this case, SembCorp obtained a representative office in the Middle East by
acquiring a UK based company. Sometimes an international contractor has a
representative office together with a branch company (RO08) or subsidiary (RO03 and
RO09) in the same market. In this arrangement, the representative office which is
independent from the local branches or subsidiaries is set to help the company
headquarters to identify certain types of projects.
Figure 5.5 depicts the relationship between RO and other entry modes. It shows
that RO can support JV projects and be transformed into a branch office or a SV
company.
98
Figure 5.5: Relationship Mapping for Representative Office
5.2.5 Licensing
Licensing in this study means a mode that may include licensing, franchising, and
technology transfer that involves a contract between parties in different countries on the
licensee’s use of limited rights or resources such as patents, trademarks, trade names,
technology, or managerial skills from the licensor. This allows the licensee to provide
construction services in the host country similar to the one the licensor has already been
providing in its home country. Licensing provides a method for profiting from a foreign
market without committing sizable funds and taking excessive international construction
risks. However, income from licensing can be lower than other modes of direct foreign
market presence and quality control can be another major disadvantage where bad quality
99
can result in damages to a licensor’s trademark and reputation. Moreover, a foreign
licensee can sometimes become a competitor of the licensor.
In Case LS02, a businessman in Hong Kong bought the regional trade name use
right from Kumagai Gumi in 1973 and established Kumagai Gumi (Hong Kong). With
the name of Kumagai Gumi, the company achieved great growth and became a
prestigious construction firm in Hong Kong. At the same time, Kumagai Gumi (Japan)
also had presence in Hong Kiong with a subsidiary and representative offices. To avoid
competition, the two parties had an undocumented agreement on how to share the Hong
Kong market. In 1996, the management of Kumagai Gumi (Hong Kong) believed that
with the previous fast development, the company could now stop using the name of
Kumagai Gumi and they changed the company name into Hong Kong Development. The
new company also stopped paying Japanese headquarters the royalty fee for the trade
name use, but the two parties can now compete in any area.
Licensing can also be implemented on a project basis. In Case LS03, Tsukishima
Kikai included technology transfer in an integrated delivery package (technology
transfer, design, procurement and construction) to win a project in China.
5.2.6 Local Agent (LA)
A significant portion of international trade is carried out through agents. The
common use of local agents is also very common in international construction. Agents
can provide principle information on local market conditions (social, legal, economic,
political, and financial); contacts with local owners, governments, and suppliers /
subcontractors; and assistance in visa application, permission application, driver’s license
application, import / export, taxes, and logistics, property and equipment lease /
purchasing, communication infrastructure, and bidding information.
100
The use of local agents may not be optional, but mandated in certain markets. For
example, in Saudi Arabia, foreign construction firms are required to have local agents
before biding for any projects except defense works. With the requirement to use local
agents, the government can control, to some extent, the qualification of construction
firms with foreign nationality.
In Case LA01, BGP (the “Principle”) signed an agent agreement with PT.Saripari
Geosains (the “Agent”), a firm in Indonesia to carry out a project that was awarded to the
PT. Saripari Geosains / BGP bidding consortium. The Agent agreed that the Principal
shall be the only valid operator to perform the project. The Principal shall execute any
related business to perform the project by (in) the name of the Agent and try its best to
maintain the Agent’s reputation. The Agent shall be compensated for services,
information and assistance provided to the Principal by way of a commission fee.
Local agent mode can be transferred into a JV company. In Case LA02, BGP,
with the help of its market agent (Rees Oil & Gas Service LLC), won a project in Oman.
To carry out the project, the company had to establish a local commercial presence in the
form of a JV Company (local partner must have at least 30% equity; a Branch company
can be registered, but it can only be allowed to conduct public projects). BGP then
formed a joint venture with Rees Oil & Gas Service LLC to fulfill the legal requirements.
5.2.7 Joint Venture (JV) Company
A joint venture (JV) company occurs when two or more legally separate bodies
form a jointly owned entity in which they invest and engage in various decision-making
activities (Geringer 1991). A JV company is termed International JV company where at
least one of the parties (or parents) is based outside the country where the venture is
101
taking place (Geringer and Hebert 1989). A JV company can take one of two legal forms:
1) corporation; and 2) partnership. Construction organizations have extensively used
international JVs as a vehicle to enter new construction markets around the world
(Mohamed 2003). A JV company can be further classified as majority JV, equal JV and
minority JV according to the equity percentage of a specific partner. To set up a JV
company, each partner contributes cash, facilities, equipment, materials, intellectual
property rights, labor, or land-use rights.
Complementary capabilities and resources are normally the basis to form a JV
company. In Case JV01, Black & Veatch provided design and its partner Tarmac
provided construction to provide a single entity for public and private clients seeking
turnkey construction services on all types of projects. A JV company can be formed 1)
between contractors (e.g., in Case JV02, Dragados formed a JV company with a ship
repair company in Qatar to expand into offshore work in the Middle East); 2) between
contractor and owner (e.g., in Case JV11, China Harbor established a JV with its owner
to achieve growth in Singapore); and 3) between small and medium size firms to form
synergy to pursue overseas projects (e.g., in Case JV10, five Singapore-based firms
formed a JV company in Singapore to pursue projects in the former Soviet Union and
Eastern Europe).
Mergers & Acquisitions are a very common approach to establish JV companies.
In Case JV03, JGC purchased 45% of the M.W. Kellogg Co. to enter new markets in the
Middle East. As a well-known acquirer, Skanska entered Germany (JV05) and the Czech
Republic (JV06) by acquiring partial equity in local firms.
To avoid potential competition between the partners and the new JV company,
market split can be set. In Case JV16, Steiner and Turner formed an equal JV company to
pursue international projects, but Turner and Steiner each would retain some international
102
markets outside the target market of the new firm. Turner would hold back projects in
North America and Japan, while Steiner would keep projects in Switzerland and
Germany.
Figure 5.6 shows that a JV company does not mean the firm cannot form a JV
project with other local firms. In Case JV07, Raytheon formed a JV company with
SMAS, a local firm, and then this company pursued a project by forming a JV project
with another local firm.
Figure 5.6: Relationship Mapping for Joint Venture Company
103
5.2.8 Sole Venture (SV) Company
The sole venture subsidiary offers international contractors increased flexibility
and control to set up and protect their own processes and procedures and expand as
quickly as they wish. Although it can be established more quickly than a JV company
which involves time consuming negotiation, the establishment of a SV subsidiary is still
lengthy as well as complex and costly. To establish a SV company, an international
contractor can either use green field investment (4 out of the 11 cases) or acquisition (7
out of the 11 cases) (see Figure 5.7). M&As are the quickest way to expand one’s
investment in the target country and offer immediate access to resources.
Many MNEs use a SV company only after expanding into markets through other
modes that have helped them accumulate enough host country experience. However, in
the international construction market, it is common for a foreign company to establish a
SV in a foreign market without any local experience even without M&As (e.g., Case
SV04 and SV10). However, this feasibility does not always make sense. In Case SV04,
China Harbor (Singapore) registered in Singapore as a SV company in 1985, but the first
project was not obtained until 1992. In Case SV04, China Harbor, after completing
several large projects in Singapore and establishing its name, restructured the SV into a
majority JV company (81%) with a local client. The change proved successful for China
Harbor’s growth in Singapore.
Figure 5.7 shows that a SV company can form JV project with local partners to
pursue and implement projects. It can coexist with a representative office or branch
office, or be transferred into a SV company. Mergers and Acquisitions are common for
establishing a SV company.
104
Figure 5.7: Relationship Mapping for Sole Venture Company
5.2.9 Branch Office / Company (BO)
In addition to a representative office, a branch office (BO), or sometimes referred
to as a branch company, is another relatively simple means for a new entrant to establish
or expand a presence in a target country. In some countries (e.g., China), only foreign
investors engaged in very few specific industries (e.g., banking) may apply for branch
registration. Most foreign investors in China usually start with a RO rather than a BO.
Branch office differs from representative office in that it can undertake business
transactions in a host country, and also differs from a SV company in that it normally
105
does not have a legal person status so that the foreign parent company is liable if civil
charges are brought against the branch. Tax implications also differ from a SV company.
To shield the parent company from unlimited damage claims, foreign companies
interested in establishing branches offices may designate an offshore subsidiary as the
parent. To establish a branch company or office, the parent company normally needs to
register with the host government.
Branch offices vary in the degree of localization. In Case BO08, SembCorp’s
Moscow office is a self contained unit, managed and administered locally, and under the
guidance of the head office. Where necessary, colleagues in Moscow can request the
support of the head office staff to support the sales effort or offer technical advice and
expertise. In Case BO04, Shimizu’s Taiwan office has 42 Japanese expatriates out of a
total staff of 89.
A BO is regularly established from scratch, but also can be developed from other
modes (see Figure 5.8). For example, in Case BO04, Shimizu changed its representative
office established in 1986 into a branch office in 1993. A BO can be established
indirectly through an M&A. For example, in Case BO08, SembCorp obtained a branch in
Russia that was established in 1994 by acquiring its UK parent company in 2001.
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Figure 5.8: Relationship Mapping for Branch Office / Company
5.3 Evaluation of the Entry Modes
To confirm the existence of the defined entry modes for international construction
markets and evaluate the comprehensiveness of this taxonomy of entry modes, a
questionnaire survey (see Appendix O) of seasoned participants in international
construction arena was performed. A total of 6 responses from practitioners with an
average of 16.5 years of international construction work experience were obtained (see
Table 5.2 for particular details).
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Table 5.2: Respondent Particulars
Respondent
1
2
3
4
5
6
Designation
Vice president
Vice president
Director
Senior project manager
International manager
Senior project manager
Company ENR
ranking (2004)
Top 20
Top 20
Top 100
Top 100
Top 150
Top 150
International
experience (YRs)
8
10
34
15
12
20
Entry decision
involvement
Yes
No
Yes
Yes
Yes
Yes
The respondents were asked to measure the frequency of the listed entry modes
based on their observation with a 3 point scale (0: I have never seen this mode; 1: I have
seen it, but it is not commonly used; and 2: I have seen it commonly used). They were
also asked to add other modes they could identify. The frequency of each mode is
reported in Table 5.3 and no additional entry modes were proposed. It can be seen from
the table that most entry modes are commonly used in the industry except licensing.
However the non-zero score (0.67) for licensing confirms its existence.
Table 5.3: Entry Mode Evaluation
Statitics
Code
Entry Mode
Mean
Categorical
Rank
Overall
Rank
1.50
1.50
4
4
13
13
2.00
2.00
1.83
1
1
3
1
1
6
1.67
1.00
1.83
1.33
1.67
1.33
1.33
0.67
2
7
1
4
2
4
4
8
10
18
6
15
10
15
15
19
1.83
1.60
2.00
1.83
2
4
1
2
6
12
1
6
2.00
2.00
1
1
1
1
Inter-corporate level (contractual) entry modes
Mode 1
Mode 2
Mode 3
Mode 4
Mode 5
Vertical Strategic alliance
Alliance/network with owners
Alliance/network with suppliers/subcontractors
Horizontal Strategic alliance
Alliance/network with local contractors
Alliance/network with regional contractors
Alliance/network with international contractors
Corporate level (investment) entry modes
Cooperative entry modes*
Mode
Mode
Mode
Mode
Mode
Mode
Mode
Mode
6
7
8
9
10
11
12
13
Minority (<50%) equity Joint venture newly established
Minority (<50%) equity Joint venture established by M&A
Equal (50%) equity Joint venture newly established
Equal (50%) equity Joint venture established by M&A
Majority (>50%) equity Joint venture newly established
Majority (>50%) equity Joint venture established by M&A
Local agent
Licensing
Mode
Mode
Mode
Mode
14
15
16
17
Sole venture newly established
Sole venture established by M&A
Branch office/company
Representative/liaison office
Mode 18
Mode 19
Joint Venture project/Consortium
BOT/Equity project approach
Competitive entry modes*
Project level (contractual) entry modes
108
It should be noted that there is another basic market entry mode, sole venture (SV)
project, which has not been addressed in the above analysis and evaluation. It is the most
simple and direct entry mode that does not involve any partners or special contractual
arrangement for risk mitigation or know-how transfer, or any form of ongoing presence
in the local market. No case studies were collected for it. In fact in the international
business literature reviewed by this research, SV project was not specifically addressed as
an entry mode. Maybe for the same reason, none of the respondents added it in the
survey. SV project can conceptually be used as a base entry mode, so by comparing with
it, the unique institutional arrangements of any of the other entry modes can be identified.
SV project is therefore included as a basic market entry mode for further investigation in
Chapters 7 and 8.
In the manufacturing industry, subcontracting is used as an entry mode where the
entrant, located in its home country, contracts with a local manufacturer to process goods
into finished goods that will be distributed into the local market. This definition is
obviously different from what subcontracting means for the construction industry. One
characteristic of the construction industry is that the construction product is attached to
the construction site, so subcontracting with the above definition for manufacturing
cannot be used to penetrate overseas construction markets. Subcontracting as defined in
the construction industry cannot be taken as an entry mode either, because it is a term
which defines the project delivery arrangement and is not related to the internal
institutional settings of any contractor involved, no matter whether it is the main
contractor or subcontractor under the subcontract.
Considering the complicated and changing global construction market, this study
recognizes: 1) the possible existence of other entry modes that are either uncommon or
out of the scrutiny of this limited research, and 2) the possible emergence of new entry
modes in the future.
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5.4 Transferability and Compatibility of Entry Modes
The matrix in Figure 5.9 shows the compatibility (degree to coexist with other
entry modes) and transferability (degree to be changed into other entry modes) of the
entry modes based on the previous analyses of individual basic entry modes (see Figures
Sole venture company
Branch office
Joint venture company
Representative office
Local agent
Licensing
BOT/PPP/PFI
Joint venture project
Strategic alliance
5.1 through 5.8). It can be observed that:
Figure 5.9: Transferability and Compatibility of Each Entry Mode
1) Strategic alliance is the most compatible entry mode. It can coexist with most
of the other entry modes. Other contractual entry modes can coexist with
most of other entry modes (high compatibility). Most contractual entry modes
normally cannot be changed to other entry modes (low transferability).
2) Representative office shows high transferability and compatibility. Other
investment entry modes are less flexible, but are compatible with most of the
other entry modes (high compatibility).
110
It must be noted that the matrix and the associated observations are however
constrained by the representativeness of the database.
5.5 Entry Mode-Country Relationship (Applicability)
One critical question about these entry modes is related to their general
applicability around the globe. To make a general taxonomy, the entry modes must be
structured on a general basis. Therefore, 42 representative countries from different
geographic regions were investigated for their legal constraints upon the entry modes.
Regarding each country, their investment laws and regulations were reviewed. As most of
the countries are WTO members, their WTO commitments were examined. The result is
shown in Table 5.4 . It can be observed that except for a small number of countries (e.g.,
Malaysia, Thailand, Indonesia, India, Mexico, UAE, Kuwait, Pakistan, Oman, and Egypt)
imposing strict constraints on equity ratio of foreign contribution, most entry modes can
be applied in different markets. It is also noticed that China has not allowed branch office
/ company and Thailand has recently denied representative offices. BOT / equity projects
are feasible in most of these countries. It is important to note that what is reported here is
just applicability of these entry modes from a legal aspect. This does not mean the
sampled countries support or encourage all legally feasible entry modes. To protect the
local construction industry, the feasibility may be further constrained by other barriers
and they will be discussed in Chapter 8.
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Table 5.4: Applicability of Entry Modes for Selected Markets
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√
√
√
√
37
BOT
68183.5
181324.45
9514.92
16053.29
617909.12
17380.65
19711.12
3691.11
7425.65
12109.53
60241.87
43300.62
819300
65234.97
44633.65
109124.74
8650.27
30668.24
9147.82
11564.03
22060.56
43415.01
3669.84
7718.46
15285.42
252681.54
109223.95
42295.4
106666.96
86389.84
29095.32
12153.88
1663.2
5068.58
23786.86
8275.25
5146.86
25401.56
12711.45
1217.4
3828.72
9697.38
71014.83
Local agent
15.4
17.02
12.05
12.4
13.87
18.67
10.78
12.4
9.54
8.3
12.28
10.49
8.234
10.18
8.95
13.8
10.81
10.6
15.2
10.7
13.63
10.81
10.8
13.53
11.54
11.37
7.72
10.59
7.01
14.76
11.1
12.01
9.9
8.1
16.96
15.1
16.8
12.97
13.1
15
8.4
7.18
11.91
SV project/
company
Asia/Pacific
Asia/Pacific
Asia/Pacific
Asia/Pacific
Asia/Pacific
Asia/Pacific
Asia/Pacific
Asia/Pacific
Asia/Pacific
Asia/Pacific
Asia/Pacific
Asia/Pacific
North America
North America
Latin America
Latin America
Latin America
Latin America
Latin America
Latin America
East Europe
East Europe
East Europe
East Europe
West Europe
West Europe
West Europe
West Europe
West Europe
West Europe
West Europe
Middle East
Middle East
Middle East
Middle East
Middle East
Middle East
Middle East
Africa
Africa
Africa
Africa
JV project/
company
Korea, South
China
Malaysia
Thailand
Japan
Singapore
Hong Kong
Vietnam
Phillipines
Indonesia
India
Australia
USA
Canada
Mexico
Brazil
Chile
Argentina
Peru
Venezuela
Poland
Russia
Romania
Czech
Finland
Germany
UK
Netherland
France
Spain
Belgium
Israel
Oman
Pakistan
Saudi Arabia
U.A.E.
Kuwait
Turkey
Egypt
Gahna
Nigeria
South Africa
Total
$ Mil
Region
% GDP
Country
Entry modes
Representative
office
Construction
√
√
√(≤70%)
√(≤49%)
√
√
√
√
√
√(≤49%)
√(≤51%)
√
√
√
√(≤49%)
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√(≤70%)
√(≤51%)
√
√(≤49%)
√(≤49%)
√
√(≤49%)
√
√
√
42
√
√
╳
╳
√
√
√
√
√
╳
╳
√
√
√
╳
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
╳
╳
√
╳
╳
√
╳
√
√
√
33
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
42
N/A
√
√
√
?
√
√
√
√
√
√
√
√
√
√
√
√
√
√
N/A
√
√
√
√
√
√
√
√
N/A
N/A
N/A
√
√
√
√
√
√
√
√
√
√
√
36
112
5.6 Summary
9 basic entry modes have been defined in this Chapter. Comparative case studies
were carried out to illustrate the use of these basic entry modes regarding their structures,
formation processes, and merits and demerits. Another basic entry mode, sole venture
project was added. Transferability and compatibility of each entry mode (except sole
venture project) in relation to others were analyzed. Finally, the applicability of these
entry modes was evaluated regarding 42 sampled markets.
113
CHAPTER 6
RELATIONSHIPS BETWEEN MARKET ENTRY MODES
Based on individual entry mode definitions reported in Chapter 5, this chapter
focuses on the investigation of relationships between these entry modes. Entry modes are
grouped based on their similarities and differences in setting characteristic (Section 6.1
and 6.2). Different entry modes are further differentiated in effects including risk
exposure, return, control, resource commitment, and flexibility (Section 6.3 through 6.5).
Based on data analysis, how different entry modes can be combined and sequenced for
overseas markets is examined (Section 6.6). Finally, the mobile entry versus permanent
entry dichotomy is investigated (Section 6.7).
6.1 Classifying Entry Modes by Setting Characteristics
The taxonomy of entry modes identified in the last chapter for international
construction markets is shown in Table 6.1.
114
Table 6.1: The Taxonomy of Entry Modes for International Construction Markets
Number
Entry Modes
1
Strategic alliance
- Vertical alliance
- Horizontal alliance
- Local partner
- Home partner
- International partner
2
Build-Operate-Transfer/equity project
3
Joint venture project
- Integrated
- Nonintegrated
4
Representative office
5
Licensing
- Long term
- Project based
6
Local agent
- Long term
- Project based
7
Joint venture company
- Major
- Equal
- Minor
- New establishment
- Mergers & acquisitions
8
Sole venture company
- New establishment
- Mergers & acquisitions
9
Branch office/company
10
Sole venture project
There are multiple ways to group the basic entry modes according to their
different and similar characteristics in institutional settings.
Depending on whether they involve competitive or cooperative relationship
between entrants and other parties, market entry modes can be classified as either
cooperative entry modes or competitive entry modes as shown in Figure 6.1. BOT /
equity project is a cooperative entry mode because it is a partnership between the public
and private sectors, and usually combined with JV project in practice.
115
Figure 6.1: Grouping Entry Modes Regarding Cooperative v. Competitive
Entry modes can be arranged on different organizational levels. Strategic alliance,
long-term local agent, and trade name licensing involve collaborative contracts between
firms. Therefore, these modes are on an inter-corporate level. SV company, JV company,
representative office, and branch office / company are different forms of a firm or
extension of firms. Therefore, they are on a corporate level. JV project, SV project,
project-based local agent, BOT / equity project, and technology licensing are all related
to the delivery of a specific project. Therefore, they are on a project level. All basic entry
modes can be classified on these three levels as shown in Figure 6.2.
Figure 6.2: Grouping Entry Modes Regarding Hierarchical Level
Some entry modes are arranged based on contracts which define each partner’s
equity and responsibilities. No corporate registration or legal entity is needed, but under
certain legal requirements, a project based legal entity may be established. This
corporation can become an “empty shell” once the project is finished (Abdul-Aziz 1995).
The other entry modes involve long term investment in host market, and are called
116
investment entry modes. This approach of classification is shown in Figure 6.3. Strategic
alliance is a special contractual entry mode in that it normally involves a contract, but it is
not legally binding and can be in verbal form. A BOT / equity project is both 1) an
investment mode as it involves large amounts of equity contribution and is for long time
period, and 2) a contractual entry mode, as it is based on a concession agreement.
Figure 6.3: Grouping Entry Modes Regarding Contractual v. Investment
Entry modes can also be classified be the level of ownership. They are either
partially owned or wholly owned by the entrant as shown in Figure 6.4. One mode to
note is the strategic alliance where costs involved in the alliance is normally shared by
partners. It is therefore conceptually reasonable to classify it into a partially owned entry
mode. In licensing, ownership of firm title or technology completely belongs to an
entrant for a specific market or project, so it can be conceptualized as a wholly owned
entry mode. This grouping dimension, however, cannot apply to a local agent. BOT can
be implemented by either a JV or SV project company, though JV is more common.
Figure 6.4: Grouping Entry Modes Regarding Ownership
117
Entry modes can be classified by whether they can only support other entry
modes or they can be applied independently (see Figure 6.5). Among the basic entry
modes, strategic alliance and local agent are supportive entry modes in the sense that they
by themselves do not involve an actual penetration of the overseas markets. Instead, they
must be used with other modes to pursue and implement projects. All other entry modes
can be applied independently.
Figure 6.5: Grouping Entry Modes Regarding Supportive v. Principle
Williamson (1975; 1985) presented a conceptual framework that contrasted the
market and the hierarchical firm as the two main transaction modes. According to the
position in the continuum with market and hierarchy as two extremes, basic entry modes
can be classified into three groups: hierarchy entry modes, quasi-hierarchy entry modes,
and quasi-market entry modes (see Figure 6.6). There are, however, no market entry
modes. This grouping dimension in fact reflects the internalization / market failure degree
of basic entry modes.
118
Figure 6.6: Grouping Entry Modes Regarding Market v. Hierarchy
The dichotomy of permanent entry versus mobile entry splits basic entry modes as
shown in Figure 6.7. The classification of an entry mode as mobile or permanent
depends on its duration, degree of localization, and existence of an on-going organization
to carry out support activities (see Figure 4.8 in Chapter 4). The BOT / equity project
normally has a long duration and a high degree of localization. But, from an international
contractors’ viewpoint, the participant in such a project does not have a permanent
residence to support business growth, but usually aims to get the construction contract.
Also, contractors can have the option to exit once the facility is completed. Therefore the
BOT / equity project is defined as a mobile entry mode.
Figure 6.7: Grouping Entry Modes Regarding Mobile v. Permanent
The selection between mobile entry and permanent entry is critical in practice as
discussed in Chapter 4, and the next two chapters will specifically address this selection
issue. From a selection perspective, not all entry modes in Figure 6.7 need be considered.
For example, the selection between the two supportive entry modes (strategic alliance
and local agent) and others is not required. Since entrants will not face a selection
119
between strategic alliance and JV company, but may need to decide whether to use a
strategic alliance to support a JV company. In addition, licensing is rare as indicated from
the industry survey and data collection (see Chapter 5). To simplify the selection issue to
be addressed in the next two chapters, this research will exclude licensing, strategic
alliance, and local agent in the permanent entry versus mobile entry dichotomy (see
Figure 6.8).
Entry modes
Mobile
SV project
JV project
BOT/Equity project
Permanent
JV company
SV company
Branch company/office
Representative office
Figure 6.8: Grouping Entry Modes Regarding Mobile v. Permanent (Used for Mode
Selection)
6.2 A Synthesis of Setting Characteristics of Entry Modes
The above analysis demonstrates that there are multiple dimensions of
institutional settings that can be used to differentiate and classify entry modes. These
dimensions and their grouping results are summarized in Table 6.2
120
Table 6.2: A Synthesis of Setting Characteristics of Entry Modes
BOT/Equity project
Branch office/company
Project based local agent
JV company
Nonintegrated JV project
Representative office
Strategic alliance
Long term local agent
SV company
SV project
Project based licensing
Integrated JV project
Long term licensing
Cooperative
versus
competitive
Cooperative
Competitive
Cooperative
Cooperative
Cooperative
Competitive
Cooperative
Cooperative
Competitive
Competitive
Cooperative
Cooperative
Cooperative
Hierarchical
levels
Project
Corporate
Inter-Corporate
Corporate
Project
Corporate
Inter-Corporate
Inter-Corporate
Corporate
Project
Inter-Corporate
Project
Inter-Corporate
Contractual
versus
investment
Either
Investment
Contractual
Investment
Contractual
Investment
Contractual
Contractual
Investment
Contractual
Contractual
Contractual
Contractual
Ownership
Either
Whole
N/A
Partial
Partial
Whole
Partial
N/A
Whole
Whole
Whole
Partial
Whole
Temporary
Supportive
versus
versus main
permanent
Main
Temporary
Main
Permanent
Supportive Temporary
Main
Permanent
Main
Temporary
Main
Permanent
Supportive Permanent
Supportive Either
Main
Permanent
Main
Temporary
Main
Temporary
Main
Temporary
Main
Permanent
Hierarchy
versus market
N/A
Hierarchy
Quasi-Market
Quasi-Hierarchy
Hierarchy
N/A
N/A
Quasi-Market
Hierarchy
Hierarchy
Quasi-Market
Quasi-Hierarchy
Quasi-Market
With the defined dimensions, all basic entry modes have unique patterns except
branch office / company and SV company. These two entry modes are in the same group
for each of the dimensions. To differentiate between them, an additional dimension must
be added. A distinctive dimension which differentiates these modes is nationality. A SV
company has a local legal person status while a branch company is only an expansion of
the headquarters based in the home country.
These dimensions can be integrated to show the relationships between entry
modes more sophistically. A grouping method combining three dimensions (competitive
versus cooperative, hierarchical level, and contractual versus investment) is shown in
Figure 6.9.
121
Entry modes
Cooperative modes
Competitive modes
Inter-corporate level
(contractual)
- Strategic alliance
Vertical alliance
Horizontal alliance
Local partner
Home partner
International partner
- Local agent
Long term
- Licensing
Long term
Corporate level (Investment modes):
- JV company
Major
Equal
Minor
New establishment
M&As
- SV company
New establishment
M&As
- Branch office/company
- Representative office
Project level (contractual)
- JV Project
Integrated
Nonintegrated
- BOT/Equity project
- SV project
- Local agent
Project based
- Licensing
Project based
Figure 6.9: Grouping Entry Modes with Multiple Dimensions
6.3 Different Effects of Entry Modes
The defined dimensions aid in the identification of each entry mode. However,
when contractors select entry modes, they do not directly look at these dimensions.
Instead, they investigate the strategic effects of different entry modes including the risk
exposure, return, control, resource commitment, and flexibility. Some researchers
contend that selection of entry modes should be based on trade-offs between risks and
returns, and an entrant should choose the mode that provides the highest risk adjusted
return (Agarwal and Ramaswami 1992; Luo 2001). In addition to return and risk,
122
behavioral evidence reveals that this selection is also determined by resource availability
and control need (Cespedes 1988; Stopford and Wells 1972). This research suggests
another effect of entry mode: flexibility. An international contractor should consider
these five strategic effects (risk, return, control, resource, and flexibility) in a unified
framework when they select an entry mode.
6.3.1 Risk Exposure
Managing risk is one of the primary objectives of firms operating internationally
(Ghoshal 1987), however the strategic management field lacks a generally accepted
definition of risk (Miller 1992). The label “risk” has commonly been assigned to factors
either external or internal of the firm that have an impact on the risk experienced by the
firm. In this sense, “risk” actually refers to the source of risk. Some common examples of
risk referring to the sources of risk are terms such as “political risk” and “economic risk.”
A firm’s strategy addresses the alignment of the organization to its uncertain
environment. As such, organizational strategic choices determine a firm’s exposure to
uncertain environmental and organizational components that impact firm performance.
Therefore, the evaluation of the degree of risk exposure for each entry mode in the
feasible set is very important to ensure desirable entry performance.
Two kinds of risk, investment risk and contractual risk, are relevant to market
entry mode differentiation and selection. The investment risk in a host country reflects
the uncertainty over the continuation of present economic and political conditions and
government policies which are critical to the survival and profitability of a firm’s
operations in that country (Agarwal and Ramaswami 1992). Examples of investment risk
include the risk that a host government will obstruct the repatriation of profits and the
control of foreign assets, and the risk of a breakdown in the international trade and
investment policies of the government (Root 1987). Permanent entry modes, because
123
they are intended to be present in the host market for a long term, are subject to more
investment risk than mobile entry modes.
Contractual risk reflects the uncertainty and cost of making and enforcing
contracts in a foreign country (Agarwal and Ramaswami 1992). Examples of contractual
risk include risk of dissipation of proprietary knowledge, and risk of deterioration in the
quality of services if operated jointly with a host country partner of a licensee. As a type
of contractual risk, dissemination risk refers to the risk that firm specific advantages in
know-how will be expropriated by a licensing or joint venture partner (Hill and Kim
1988). The risk of dissemination of know-how is likely to be lowest of all in the case of a
wholly owned subsidiary (Hill et al. 1990).
6.3.2 Control
Control refers to a firm’s need to influence systems, methods, and operational and
strategic decisions in a foreign market (Andersen and Gatignon 1986). Control can also
refer to the process by which one entity influences, to varying degree, the behavior and
output of another entity through the use of power, authority and a wide range of
bureaucratic, cultural and informal mechanism (Geringer and Hebert 1989). Control plays
an important role in the capacity of a firm to achieve its goals. Control is desirable to
improve a firm’s competitive position and maximize the returns on its assets and skills.
The level of control is lowest in the case of licensing and highest in the case of a wholly
owned subsidiary (Hill et al. 1990).
Geringer and Hebert (1989) operationalized control in an international joint
venture along three dimensions: mechanisms (e.g., right of veto, representation in
management bodies, and special agreements related to either technology or management),
extent, and focus (i.e., parents may choose to exercise control over a relatively wider or
narrower scope of the IJV’s activities).
124
Traditionally, control has been perceived by researchers as flowing from
ownership (Erramilli 1991). Higher operational control results from having a greater
ownership in the foreign venture. However, control can be exerted in multiple ways
rather than be a strict and automatic consequence of ownership (Behrman 1970). Risks
are also likely to be higher due to the assumption of responsibility for decision-making
and a higher commitment of resources (Agarwal and Ramaswami 1992). With control a
firm can coordinate actions, carry out strategies, revise strategies, and resolve the
disputes that invariably arise when two parties to a contract pursue their own interests
(Davidson 1983). The entrant can also use its control to obtain a larger share of the
foreign enterprise’s profits.
To take control, the entrant must assume responsibility for decision making,
responsibility a firm may be unwilling or unable to carry out in an uncertain foreign
environment. Control also entails commitment of resources, including high equity
contribution (ownership) and high overhead. This in turn reduces the firm’s ability to
change its institutional arrangement. Thus, to assume control is also to assume some form
of risk.
6.3.3 Resource Commitment
Resource refers to the financial and managerial capacity of a firm for serving a
particular foreign market (Agarwal and Ramaswami 1992). Resource commitment means
that assets are dedicated to a venture and cannot be redeployed to alternative uses without
cost (loss of value). These assets may be tangible or intangible.
It is important to note that resource commitments constitute an exit barrier and
serve to limit the strategic flexibility of the firm (Harrigan 1981). When resource
commitments are extensive, the MNE cannot exit a foreign market without incurring
125
substantial sunk costs (Hill et al. 1990). Resource commitment increases the firm’s risk
exposure, e.g., the possibility of losses due to currency changes (Davidson 1983).
6.3.4 Flexibility
Flexibility is an important construct to weigh any strategy. Harrigan (1985a)
conceptualized strategic flexibility as a firm’s abilities to reposition themselves in a
market, change their game plans or dismantle their current strategies when the market is
no longer as attractive as it once was. Hambrick (1985) contended that the essence of
strategy is the balance of focused, concerted commitments on the one hand and resource
flexibility on the other. Because the strategic environment is always changing, no
organization has enough knowledge to address all issues in advance.
From a geographic market entry perspective, flexibility means the adaptability of
the entry mode to the changing environment of the local market. With highly flexible
entry modes, firms can easily withdraw from a risky market or penetrate a market further
depending on new developments. One reason that entry mode selection is critical is that a
firm’s initial choice of a particular mode are difficult to change without considerable loss
of time and money (Agarwal and Ramaswami 1992; Root 1987). High flexibility can
therefore reduce loss and improve a contractor’s capability in mitigating risk. Therefore,
the flexibility varies across different entry modes and is a very important dimension of
consideration to optimize the selection.
6.4 A Synthesis of Different Effects
These effects are interrelated (see Figure 6.10). For example, firms entering an
emerging market seek high returns while avoiding unaffordable risks. To achieve these
returns and attenuate risks, they must maintain necessary control over their proprietary
resources and offshore operations. As return attainment and risk reduction are also
126
determined by the liability of foreign partners, an entry mode that helps acquire
country-specific knowledge from local firms is often chosen. To summarize, firms will
opt for an entry mode which provides the maximum risk-adjusted net return and an
appropriate level of flexibility by controlling their income-generating assets and
acquiring new resources from other firms.
Figure 6.10: Relationships between Effects
However, the interactive and inseparable nature of the relationships between the
above five effects implies that in general there is no single preeminent effect to allow for
the prioritization of the basic entry modes. Each entry mode has a different composition
regarding this effect paradigm, and so which effect(s) are relatively preeminent depends
on the set of entry modes to select from (see Section 6.5). For example, when the
selection is between JV company and SV company, control is the preeminent effect
(Andersen and Gatignon 1986). On the other hand, entrants have different priorities
regarding each effect because of their specific internal and external environment, as well
as strategic perspective when planning market entry. For example, an entrant will
emphasize control when it has high asset specificity and the possibility of opportunism is
also high. Therefore, entry mode selection is a process composed of environmental
screening and entry mode comparison which are linked with effect matching. Because
there are multiple theories that explain different contingency relationships between
decision factors and effect requirement (e.g., transaction cost economics proposes
127
entrants with high asset specificity use entry modes with high control at risk of
opportunism), a synthesized theoretical perspective is necessary to address the entry
mode selection decision. Therefore, in the next sections of this chapter, the difference
between permanent entry and mobile entry in effects is investigated, and in Chapter 7,
multiple business and economic theories are reviewed and combined to identify factors
and develop hypotheses related to their impacts upon entry mode selection.
6.5 An Investigation of Different Effects of Entry Modes
Entry modes can be roughly ranked according to their control effect and
contractual risks exposure effect as in Table 6.3. As an extension of the home country
based head office, branch office and representative office are directly controlled by the
head office, both operationally and strategically. SV company, SV project, and
Nonintegrated JV project are all completely foreign owned. Without participation of local
partners, entrants exert complete control and also avoid opportunism of partners. As
quasi-hierarchy modes, JV company and integrated JV project involve partners, and
therefore contractual risk increases. Local agent and licensing involve a business formed
on the basis of a contract. Entrants cannot operationally influence their partners’ activities
and therefore control is low. It is difficult to place strategic alliance anywhere in this list,
as it is least contractually binding and a very loose cooperative relationship. Therefore, it
is not shown in Table 6.3. A strategic alliance typically involves very little control and
contractual risk exposure.
128
Quasi-hierarchy
entry modes
Quasi-market
entry modes
Competitive
Branch office/company
Representative office
SV company
SV project
Nonintegrated JV project
JV company
Integrated JV project
Local agent
Licensing
Contractual risk
Cooperative
Hierarchy
entry modes
Control
Table 6.3: Difference Between Entry Modes Regarding Control and Contractual Risk
Exposure
Mobile entry and permanent entry modes are different in three strategic effects:
resource commitment, investment risk exposure, and flexibility (see Table 6.4).
Permanent entry modes involve a partial or complete corporate infrastructure in the host
country, so this, when other conditions are equal, adds to resource commitment and
decreases flexibility. Because they involve long term presence on an ongoing basis,
entrants are exposed to the investment environment of the host market. This again implies
less flexibility than permanent entry modes.
Mobile
entry modes
Cooperative
JV company
Competitive
Branch office/company
Representative office
SV company
JV project
BOT/Equity project
SV project
Flexibility
Permanent
entry modes
Resource commit.
Invest. Risk
Table 6.4: Difference between Entry Modes Regarding Resource Commitment,
Investment Risk Exposure, and Flexibility
Because this research focuses on the selection between mobile entry modes and
permanent entry modes, their difference in resource commitment, investment risk
exposure, and flexibility effects are critical in identifying influencing factors that will be
discussed in Chapter 7.
129
6.6 Entry Mode Combination and Sequencing
It is not unusual for contractors to use mobile entry modes before they choose
permanent entry modes. For example, in the dataset (a subset of data in Appendix K)
analyzed in the Section 4.5 of Chapter 4 about 33 international contractor’s entry mode
selection, out of 330 cases where permanent entry modes were used 124 involve entrants
using temporary entry modes before for the same markets. However, most contractors
stick to entry modes they first selected, or say, they selected their desirable entry mode at
the first place rather than started with less risky or resource-committed modes. In the
same dataset, there are 1187 cases including both mobile and permanent entry modes in
total, and only these 124 cases (10.45%) involving a sequential use of mobile entry
modes and then permanent entry modes for the same overseas markets.
To investigate the sequential relationships between basic entry modes, detailed
cases were identified that provided information about which basic entry modes were used
and how they were sequenced. 37 cases were identified (see Table 6.5) from the dataset
(see Appendix K) based on the ability to find data related to the sequential nature of the
entry mode utilization. Majority of them (31 our 37) involved only 2 different permanent
entry modes. In comparison with other sectors (e.g., manufacturing), entry with a gradual
increasing commitment is not common in the construction sector.
130
Table 6.5: Dataset for Investigating Combination and Sequencing of Entry Modes
Entry
#
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
Home
country
Bilfinger BeGermany
Bilfinger BeGermany
Black & Ve USA
Bovid LendUK
China HarbChina
Chiyoda Japan
Clough
Australia
ConstrutoraBrazil
ConstrutoraBrazil
CTCI
Taiwan
CTCI
Taiwan
CTCI
Taiwan
Enelpower Italy
Enelpower Italy
Gammon Hong Kong
HOCHTIEFGermany
HOCHTIEFGermany
HOCHTIEFGermany
JGC
Japan
Kajima
Japan
Kinden
Japan
Leighton Australia
Leighton Australia
Obayashi Japan
SembCorp Singapore
Shimizu
Japan
Shimizu
Japan
Shimizu
Japan
Taikisha Japan
Taikisha Japan
Taikisha Japan
Takenaka Japan
Takenaka Japan
Takenaka Japan
Takenaka Japan
TRACTEBEBelgium
Zublin
Germany
Entrant
Host country Projects
USA
China
China
Belgium
Singapore
Singapore
Indonesia
Angola
Argentina
Hong Kong
China
Malaysia
U.A.E.
Brazil
China
Brazil
Poland
Australia
Indonesia
Singapore
HK
Singapore
Thailand
USA
China
USA
China
Taiwan
Singapore
HK
HK
Malaysia
Indonesia
Singapore
China
Poland
China
RO
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There is not enough information about whether these entrants have ever used
strategic alliances to support their entry activities, or enough details to judge what kind of
contractual entry modes were used. Therefore only five modes were investigated: project
based entry (JV project, SV project, or BOT / equity project), representative office, JV
company, branch office, and SV company. It is also apparent that the contractors are not
representative (majority of them are from Asia, especially Japan). Nevertheless, a map of
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the progression of mode changes as depicted in Figure 6.11 indicates that any transfer
from a less risky and recourse committed mode to a more risk and resource committed
mode is practically possible except from a transfer from JV company to branch office /
company.
Investment
risk
Branch office/
company
JV company
SV
company
Representative
office
Projects
Resource
Figure 6.11: Evolution of Entry Modes in International Construction
There is a special transfer from more risky entry mode to less risky one. In entry
case 5, China Harbor had a SV company in Singapore before this subsidiary formed a JV
with a local client. The change was to China Harbor’s interests because it achieved a
much stronger client base at the cost of some degree of control.
To investigate how multiple basic entry modes can be combined simultaneously
for target overseas market, 30 detailed cases were selected from the database (see
Appendix K) as shown in Table 6.6. As can be seen from the table, either mobile entry
modes or permanent entry modes can be combined with other entry modes. However, in
Table 6.6, there is no combination between any mobile entry mode and permanent entry
mode.
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Table 6.6: Combination of Entry Modes
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
Bechtel + North West Water -> world
Fluor Daniel + Hitachi ->Japan
Morrison Knudsen + Spet. -> former Soviet Union
Morrison Knudsen + Spet. -> Western world
Bechtel + Pipe Line System -> world
BEJK + DuPont -> USA
BEJK + DuPont -> Outside USA
Jacobs + Wimpey -> world
Skanska + Coca-Cola -> world
Bovis Lend Lease + BP -> world
Bechtel + Wireless Facilities -> world
Fluor Daniel + AMEC ->world
Bechtel + Korea ->Korea
Beacon + Dioguardi -> USA
Beacon + Dioguardi -> Europe
Fluor Daniel + Ohbayashi ->Japan
Parsons + Shimizu -> Japan
Kumagai Gumi -> Hong Kong
TSUKISHIMA KIKAI -> China
Ohbayashi + subsidiary -> US project
Maeda + local firm -> Taiwan
Bovis Lend Lease -> Dachang water plant
Hopewell -> Shajiao B power plant
Hopewell -> India power plant
Daewoo -> Laos power plant
Shimizu -> Taiwan
Fujita -> Peru
CSCEC -> Korea, South
Obayashi -> USA
Dematteis + local firms -> China
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Licensing
Local agent
Others
Strategic alliance
SV company
JV company
Branch office/company
Permanent entry
modes
Representative office
BOT/equity project
SV project
Description
JV project
Case number
Mobile entry
modes
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There are various combinations of entry modes within the same group. In Case 3,
Spet. formed strategic alliance with Morrison Knudsen to sell their patent construction
technology to the Western World through licensing. BOT / equity projects are usually
used with JV project as these projects are often large and complicated, and therefore need
versatile and capable partners (Case 1, 21, 22, 23, 24, and 25). A representative office is
often used with other permanent entry modes. In all cases involving a representative
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office (Case 18, 20, 26, 27, 28, and 29), the representative offices are used to track large
project opportunities on behalf of head offices. Once the project is granted, the head
office may form a joint venture with its local SV company or branch office / company to
implement the project.
6.7 A Review of the Mobile versus Permanent Entry Dichotomy
This research arbitrarily speculates the principle difference between permanent
entry and mobile entry as whether the international contractor performs ongoing support
activities for multiple project operations in an overseas market. Based on this definition,
the distinction is clear: an entry mode is either mobile or permanent. However, some
composite entry modes, a combination of more than one basic entry mode can be a hybrid
of both permanent entry and mobile entry. For example when the head office forms a JV
project with its overseas subsidiary to deliver a local project, some primary and support
activities are carried out by the head office from the home country on a mobile basis, and
the local subsidiary performs the rest of the primary and support activities on a permanent
basis. Although this type of combination was not found in cases used in this research, it is
theoretically feasible. A representative office, which is classified as a permanent entry
mode in this research, normally conducts some support activities for projects and the rest
are carried out by the head office. In this sense, representative office is also a hybrid entry
mode. BOT / Equity project, which is classified as a mobile entry mode in this research,
involves a long term presence in a foreign market. The project company, although
focusing on the support and operation activities of the single project, can easily be
involved in other responsibilities of the parent company in other projects in the same
market. Therefore, in general, permanent entry and mobile entry are not completely
separate, but are two extremes of a continuum. The relationships between permanent
entry and mobile entry are depicted in Figure 6.12.
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Figure 6.12: The Relationship between Permanent Entry and Mobile Entry
Nevertheless, as indicated in the above analysis (see Table 6.5), composite entry
modes that involve both permanent and mobile elements are not as common as those that
can be clearly classified in the dichotomy. A sequential use of them (from a temporary
entry mode to a permanent entry mode) is also not usual. A further investigation into the
selection between these two groups of entry modes is therefore logical and meaningful.
As Chapter 4 discussed, there is a trend of increasing use of permanent entry modes, but
mobile entry is still very common. This means that mobile entry modes still have merits
under current conditions in the global construction market. The coexistence of these two
groups of entry modes calls for further investigation to find out under what conditions
one type is preferred to the other.
These two generic entry modes or groups of basic entry modes differ in resource
commitment, investment risk exposure, and flexibility. These differences constitute the
basis to develop a model for the selection between them.
6.8 Summary
In this chapter, entry modes were examined regarding 7 setting characteristics and
5 strategic effects. The ability to combine or sequence these entry modes was also
analyzed. Permanent entry modes and mobile entry modes were found to be different in
investment risk exposure, resource commitment, and flexibility, as can be used as a basis
135
to distinguish between them. Entry modes from different groups (permanent versus
mobile) were rarely combined or sequenced. Therefore, an investigation of selection
between these two groups of entry modes is justified. The next two chapters will focus on
the selection decision between these two groups of entry modes for entering a new
international construction market.
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CHAPTER 7
THEORY DEVELOPMENT
This chapter identifies internal and external variables that may potentially
influence international contractors’ selection between permanent entry and mobile entry,
and theoretically proposes how they impact the selection (i.e., influence direction).
Hypotheses are developed regarding these factors based on theoretical reasoning and
previous research findings. For the hypotheses to be established on a sound theoretical
basis, this chapter begins with a review of related schools of theories.
7.1 Review of Related Theories
The following theories have been applied in various studies to analyze entry mode
selection. The premises, general concepts and ideas, and the method for their application
to entry mode selection of each theory are introduced individually as follows. The
relationships between different theories are also analyzed and synthesized.
7.1.1 Transaction Cost Economics
Transaction cost economics (TCE) evolved from the seminal work of Arrow
(1969), Simon (1957) and Thompson (1967), and has been extensively used to explain
market entry mode selection. The main premise of transaction cost economics is that
firms can organize their interdependence through hierarchy and market. Because each
mode differs in the method it uses to organize activities, each will be most efficient in
organizing a particular type of transaction (Hennart 1989). The market entry mode an
entrant chooses for a specific market is driven by a desire to minimize transaction costs.
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In the broadest sense these transaction costs include all costs, as well as outputs
and inputs, associated with various aspects of the value-added chain from the production
to the consumption of goods and services. They can be costs of monitoring, controlling
and inspecting performance and product quality; establishing networks of suppliers and
managing industrial relations; marketing the final product and post-sales activities; the
movement of people and materials; the acquisitions and use of information; and the
management of all kinds of risk (Dunning 1988).
If transaction costs are low, a rational firm will prefer its transactions to be
governed by the market; however, if the transaction costs are too high, the firm will
prefer an internal governance structure (e.g., a wholly owned subsidiary) (Luo 2001). The
TCE approach begins with the assumption that markets are competitive. Thus, market
failure is the primary antecedent to the firm’s decision to assume greater control
(Erramilli and Rao 1993). From the transaction-cost perspective, the most important
determinant of market failure is the presence of transaction-specific assets.
Transaction-specific assets are non-deployable physical and human investments that are
specialized and unique to a task. Asset specificity tends to create contracting hazards
because of the impact of opportunism (Brouthers 2002). Opportunism results when a
partner organization takes advantage of the other firm’s dependency through shirking,
free-riding, or technology dissemination. To safeguard specific assets from potential
opportunism problems, firms may utilize higher control governance structures, such as
wholly owned modes of entry. Firms with less asset specific products or services may be
less concerned with opportunism and safeguarding their technology and more concerned
with mode efficiency. Transaction cost theory suggests that less integrated modes of
entry provide more efficient organizational structures when there is a reduced threat from
opportunism (Williamson 1985).
TCE does not imply that traditional foreign direction investment (FDI) is always
superior to contracts (Hennart 1989). The reason is that hierarchical coordination has its
138
own costs. Therefore, internalization replaces one type of costs (market transaction costs)
with another (internal organization costs). Hierarchy will be the most efficient method to
organize the exchange when internal organization costs are lower than market transaction
costs (Hennart 1982; Hennart 1986). The benefits of integration under market failure
must be compared with the costs of integration (internal organization or bureaucratic
costs), including investment in legal, administrative, and operating infrastructures. As
such, control is assumed to carry a high price.
7.1.2 Stage Models of Entry
The “stages” models of entry suggest a sequential pattern of entry into foreign
markets with a progressive deepening of commitment (Root 1987). This school of
thoughts views business operation in an overseas market as inherently risky, because of
the different political, cultural, and market systems to which the firm must adapt (Pan and
Tse 2000).
When the firm first enters an overseas market, a low resource commitment mode
such as export is desirable. As the firm acquires more knowledge and experience in that
overseas market, it will assume a higher level of resource commitment with higher levels
of risk, control, and profit return. Therefore, this perspective often prescribes gradual
incremental involvement. It is the conceptual basis for modeling entry modes as a
continuum of increasing levels of resource commitment, risk exposure, control, and profit
potential from export to wholly owned subsidiaries (Chu and Andersen 1992).
This stage view also coexists with the internationalization process of MNEs (Lin
2000). Internationalization of a firm is a process in which the firm gradually increases
their international involvement by acquiring, integrating and using the knowledge about
foreign markets and operations. The outcomes of past history and international
experience restrict the firm performing operations in different markets by themselves.
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Each entry decision can not be explained in isolation from the internationalization
process and experiential capabilities of a firm.
7.1.3 Ownership Location Internalization (OLI) Paradigm
Dunning (1988) integrates various strands of international business theories. His
eclectic paradigm rests on three pillars of ownership specific factor, location-specific
factors and internalization specific factors. Several empirical studies have attempted to
directly or indirectly use the Dunning framework to explain choices between entry
modes. They stipulated that the choice of entry mode during international expansion is
influenced by three types of determinants: MNEs must possess superior assets and skills
that can earn economic rents high enough to counter the higher cost of servicing
international markets (the ownership advantages of the firm); MNEs interested in serving
foreign markets are expected to be selective and favor entry into more attractive markets
(the location advantages of the market); and lastly, low control entry modes are generally
considered superior for certain transactions since they allow a firm to benefit from the
scale economics of the market place while avoiding the bureaucratic disadvantages that
accompany integration (the internalization advantages of integrating transactions within
the firm).
While many scholars argue that ownership and internalization factors share some
similarities with the transaction cost perspective, the second component of Dunning’s
eclectic framework (location) clearly emphasizes the value of country-specific factors
(Tse et al. 1997). Apart from ownership factors and internalization factors, Dunning
emphasizes that location-specific factors are becoming more significant in affecting
firm’s international operations, and that these factors have an increasing impact on the
non-production related costs (i.e., the transaction costs). This perspective is important in
today’s global competition where non-production costs are rising faster than production
costs. Some studies (e.g. Hill et al. 1990; Tse et al. 1997) emphasize the influence of
140
location specific factors in differentiating equity and non-equity entry modes. Agarwal
and Ramaswami (1992) examined the interaction effects of these factors.
7.1.4 Organizational Capability
In recent years, there has been increasing attention in the literature to the notion of
firms competing primarily on the basis of capabilities (Madhok 1997), and the
corresponding notion of entry mode choice for the purpose of optimal use and
development of a firm’s capabilities.
The organizational capability (OC) perspective emphasizes effectiveness of
capability transfer, not just concern for control as emphasized by TCE (Erramilli et al.
2002). The relative merits and demerits of the OC and TCE perspectives were examined
by Kogut and Zander (1993) and Madhok (1997). The general conclusions by these
authors are that the two perspectives complement each other. Researchers have recently
stressed the need to complement the transaction costs or internalization explanations with
the OC perspective (Lin 2000). Table 7.1 highlights some key differences in orientation
between these two theories.
Table 7.1: Difference between Transaction Cost Economics and Organizational
Capability (Source: Madhok 1997)
Unit of analysis
Primary area of focus
Key assumption
TC/Internalization perspective
Transaction
Transaction characteristics
Opportunism
Source of competitiveness
Efficient management of transactions
Primary orientation in the
management of know-how
Key consideration to choice
of ownership form
Temproral orientation
Cost minimization
TC minimization; fit between transaction
characteristics and form of governance
OC perspective
Firm
Firm capabilities
Bounded rationality
Development and exploitation of
capabilities
management of value
Contributions towards and demands
placed on firm's capabilities
Essentially dynamic; learning and
Essentially static and equilibrium-oriented capability building as developmental
processes
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The OC perspective starts from the premise that every firm is thought to be a
bundle of resources and capabilities (Buckley and Casson 1976). Resources include all
assets, organizational processes, firm attributes, information, and knowledge controlled
by a firm that enables it to conceive and implement strategies efficiently and effectively
(Barney 1991). Capabilities refer to a combination of resources that creates higher-order
competencies (Madhok 1997). When a firm enters a foreign market, it must transfer the
resources and capabilities to its foreign operations. Consequently, a firm should choose
an entry mode that can best transfer its resources or capabilities from the home country
operations to the host country operations without eroding their value. Transfer of a
resource or capability need not be internalized unless the resource or capability being
transferred is imperfectly imitable (Madhok 1997). Imperfect imitability results from
embeddedness, i.e., when the capability is deeply embedded within organizational
routines and becomes specific to a firm (Madhok 1997). The OC perspective suggests
that internal modes are more effective than market modes to transfer imperfectly imitable
capabilities (Madhok 1997). The OC approach argues that except embeddedness, firms
can protect their resources and capabilities through legal means as well, that is through
copyrights, trademarks, patents, and licensing.
7.1.5 Bargaining Power
Access to foreign markets is controlled by political actors at home and abroad, so
the initial market entry decision must take into account political imperatives
(Gomes-Casseres 1990). Bargaining power (BP) theory argues that the specific mode
chosen by a MNE depends on the relative bargaining power of the firm and that of the
host government (Luo 2001). BP assumes both parties are looking to negotiate an
outcome that is in their long-term best interests (Kumar and Subramaniam 1997). The
term bargaining power refers to a bargainer’s ability to set the parameters of the
discussion, win accommodations from the other party, and skew the outcome of the
negotiation to the desired ownership alternative. A primary source of the host
142
government’s power in the negotiations is its ability to control market access and to
distribute or withdraw incentives for the investment project. On the other hand, much of
the firms’ bargaining power stems from “ownership advantages” (Dunning 1980) that it
possesses, such as the ability to employ people and contribute to the local economy.
Gomes-Casseres (1990) discusses the relationship between TCE and BP and
contends that these two theories are not competing explanations of the same
phenomenon, but address two distinct questions: the transaction cost model answers the
question “what ownership structure does the firm want?” and the bargaining power model
answers the question “what ownership structure can the firm get?”. He then
conceptualizes the entry mode selection decision as a two step sequential process by
integrating the two approaches: an MNE first deciding what it wants, and then seeking
the host government’s agreement. The firms will make concessions on ownership based
on their preference ranking.
7.1.6 Institutional / Cultural Theory
Institutions can be defined as relatively stable collections of practices and rules
defining appropriate behavior for specific groups of actors in specific situations (March
and Olsen 1998). They consist of informal (e.g., sanctions, taboos, customs, traditions,
and codes of conduct), and formal rules (e.g., constitutions, laws, property rights) (North
1990; North 1991). According to North (1990; 1991), the major roles of institutions in a
society is to establish a stable (but not necessarily efficient) structure for political,
economic, and social interaction. The difference between culture and institutions is not
unambiguous and might sometimes become blurred. As theoretical constructs, culture
and institutions represent separate scientific traditions which can be regarded as
complementary to each other. Oliver (1997) believes that the construction industry is
characterized by both intense institutional regulation and strong market competition.
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North (1990) suggests that institutional theory must be combined with transaction
cost theory because institutions provide the structure in which transactions occur.
Institutions define the rules of the game and include laws and regulations of the host
country. Transaction cost theory assumes the existence of institutional structures that
support firm actions (Meyer 2001; Williamson 1985). In some countries, the institutional
structure may create a situation where the transaction cost predicted mode choice may not
be the preferred choice. Roberts and Greenwood (1997) suggests that firms may “face
pressures to adopt designs that are within the subset of socio-politically legitimated
designs” instead of adopting transaction costs based designs. For example, the
institutional structure may provide barriers to entry such as legal restrictions on
ownership. Thus, institutional theory tends to suggest that a firm’s ability to exploit or
enhance its capabilities may vary across institutional contexts in different national
environment. Institutions reduce transaction costs by reducing uncertainty and
establishing a stable structure to facilitate interactions (Meyer 2001). However, a lack of
knowledge of markets and of the functioning of a market economy can magnify
transacting costs in the transition context.
7.2 A Synthesis of Different Theories from a Process Perspective
Transaction cost economics is by far the most extensively applied theory to
explain entry mode selection. Some researchers (e.g., Andersen and Gatignon 1986)
attempt to reconcile different entry mode explanations within a transaction cost
framework. However, Hill et al. (1990) argue that transaction cost logic alone does not
provide all of the answers, a more eclectic view of the factors that influence the entry
decision is more useful. Also, with focus on control as the preeminent effect, transaction
cost economics are useful only to differentiate ownership based entry modes, i.e., equity
joint venture versus wholly owned venture. In the OLI paradigm, the internalization
dimension is roughly the same as TCE except that the focus of internalization is on the
market for know-how while that of TCE is on more micro-level transaction
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characteristics like asset specificity (Madhok 1997; Teece 1986). Thus internalization can
be considered to be the TCE of the multinational corporation (Madhok 1997; Rugman
1986). The OLI framework was originally formed to analyze MNEs. With additional two
dimensions, OLI is a more comprehensive analysis framework than TCE in analyzing
MNEs activities. The relationship between Organizational capability and TCE have been
deeply examined by Madhok (1997) as shown in Table 7.1. These two theories, with
very different origin and focus, often result in the same results regarding ownership and
firm boundary. Bargaining power, as determined by ownership advantage, is not
dependent on TCE but can be used after preliminary selection based on TCE, or other
theories. This sequence can be generalized into another one in which when entrants have
ranked entry modes in a feasible set with appropriate schools of theories (TCE, any other
theory, or a combination of more than one theory), they use Bargaining power rationale
to determine the final choice. Institutional theory emphasizes the importance of
institutions in determining optimal or feasible entry modes. Applied in the conceptualized
two step selection process, institutional theory provides nothing new but indicates the
criticality of some institutional factors that enhance government’s bargaining power in
constraining entrant’s choice. Institutional / cultural theory also provides an enhancement
of TCE by shedding light on the institutional environment where transactions occur, and
explains the bargaining power of governments in determining the feasible set of entry
modes. The stage model sheds more light on the entrants’ know-how accumulation and
changing perception of market risk so as to decide what mode to use.
The key assumption underlying most of existing research on international entry
mode selection is that the best entry mode is the one that aligns the entrant’s strengths
and weaknesses with the environment as well as with the firm’s organizational and
strategic characteristics (Brown et al. 2003; Ekeledo and Sivakumar 1998; Hill et al.
1990). This view treats entry modes as strategic alternatives and change entry mode
selection into a strategic planning process. Essentially, to meet opportunities and threats,
entrants’ direct requirements upon entry modes are about what effects (i.e., control,
return, resource commitment, risk exposure, and flexibility) each mode possesses, rather
145
than the modes themselves. These theories are applied to develop different contingency
relationships between firm characteristics, business environment, and modes’ effects. For
example, transaction cost economics, taking control as the preeminent effect, suggests
that “the greater the combination of country risk and transaction-specificity of assets (e.g.,
proprietary content, poorly understood products, customization, product class
immaturity), the higher the appropriate degree of control” (Andersen and Gatignon
1986). The organizational capability perspective also looks at the control effect according
to the entrant’s know-how characteristics in relation to specific markets (Madhok 1997).
Both theories are used to differentiate ownership based entry modes (e.g., wholly owned
or partially owned). Other theories provide a more broad and flexible basis to link
different mode effects with internal and external environment. However, bargaining
power, stages model, and institutional theories tend to constrain preliminarily selected
entry modes suggested by other theories rather than propose optimal entry modes.
From a process perspective, international market entry can be conceptualized as a
course of activities that 1) involve entrants and other stakeholders including partners,
competitors, and governments; 2) translates a certain amount of resources into sustainable
financial and non-financial return; and 3) is controlled by multiple corporate, market, and
country level factors. This process can be depicted with an IDEF0 model as shown in
Figure 7.1.
146
Market level factors
Country level
factors
Corporate
level factors
Resources (e.g., cost
and capability)
Enter a new market
Financial return
A0
Non-financial return
(e.g., reputation, skill)
Entrant
Partner(s)
Competitors
Local governments
Figure 7.1: A Synthesis of Different Theories from a Process Perspective
Different theories take into consideration different factors and explain their
interactions with entry mode selection. TCE and Internalization dimension (TCE / I)
addresses resources (asset specificity), entrants (bounded rationality), partners
(opportunism), market factors (small number), country factors (uncertainty / complexity),
and return (transaction cost adjusted), and suggests entry modes involving minimum
transaction cost. OC addresses resources (capabilities), entrants and partners (bounded
rationality), and market and country factors (legal system), and suggests entry modes
involving best capability exploitation and / or development. OL paradigm addresses
resources (ownership advantage), market environment (location advantage), country
environment (location advantage), entrant (ownership advantage), partners and
competitors (location advantage), and government (location advantage), and suggests
entry modes that best suit or utilize these advantages. Stage Model addresses resources
(gradually increasing resource commitment), entrant (experience accumulation), and
corporate factors (experience and modes previously used), and suggests entry mode that
match entrant’s experience and risk perception. Bargaining power focuses on entrant /
partners and government (bargainers), resources (bargaining power), market and country
environment (bargaining power), and expected return at stack (bargaining power), and
suggests entry modes as a result of compromise between the two sides. Institutional /
cultural theory focuses on entrant, competitors, partners, and government (e.g., customs),
147
market environment (e.g., code), and country environment (e.g., country culture and legal
system), and suggests entry modes that adapt to the “institutional field” (becoming
isomorphic), meets the balance of bargaining power, or minimizes transaction cost. The
relationships between these theories are summarized in Table 7.2.
Table 7.2: Differences and Complements between Different Theories
Theories
Transaction cost
economics/
Internalization
Organizational
capability
Ownership &
Location
Stage model
Input
Resources
Control
Market level factors
Country level factors
Mechanism
Entrant and competitor
Resources
Market level factors
Country level factors
Market level factors
Country level factors
Corporate factors
Entrant and partners
Resources
Resources
Bargaining power Resources
Institutional /
cultural theory
Market level factors
Country level factors
Corporate level factors
Market level factors
Country level factors
Output Perspective
Entry modes
Return Optimization Ownership entry
view
modes
Optimization
view
Entrant, partners,
Optimization
competitors, and government
view
Entrant
Constraint
view
Entrant, partners, and
Return Constraint
government
view
Entrant, competitors,
Constraint
partners, and government
view
Ownership entry
modes
General
General
General
General
Table 7.2 indicates that 1) no theory alone incorporates every input of entry mode
selection; 2) no theory alone differentiates among all entry modes; 3) there are overlaps
and complements between these theories. It seems a combination of them provides a
stronger and more comprehensive theoretical basis to explain entry mode selection.
The main purpose of this research is to distinguish between mobile entry and
permanent entry based on their difference in resource commitment, investment risk
exposure, and flexibility effects. TCE / I and OC are powerful for decision related to
boundary, and therefore used in differentiating ownership / control entry modes (e.g., JV
versus SV). Stages model has been empirically proved insignificant in entry mode
selection for the construction industry (see Chapter 4). Future research will therefore
focus on the integration of the OL paradigm, bargaining power, and institutional / cultural
theories to differentiate between mobile entry and permanent entry.
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7.3 Hypotheses Development
Because no single factor is likely to have a decisive influence on the entry mode
for companies in general (although it may have for an individual company), it can only be
said that such factors encourage or discourage a particular entry mode (Root 1987). In
another word, entry mode selection is a multivariate decision problem.
A review of prior literature on foreign market entry modes and business practices
of some international contractors led to the identification of thirteen factors which may
influence the selection between permanent entry and mobile entry. These factors and
their influences can be explained by the theories identified in the previous section. They
include:
1) Home market attractiveness (bargaining power of firms)
2) Long term orientation (cultural characteristic)
3) Uncertainty avoidance (cultural characteristic)
4) Cultural distance (cultural characteristic and location advantage)
5) Trade link (location advantage)
6) Colonial link (location advantage, institutional characteristic)
7) Language proximity (location advantage and ownership advantage)
8) Host market attractiveness (location advantage)
9) Investment risk (location advantage)
10) Entry restriction (institutional characteristic / bargaining power of
governments)
11) Competitive intensity (location advantage)
12) Firm size (ownership advantage / bargaining power of firms)
13) Multinational experience (ownership advantage / bargaining power of firms)
They can be grouped into Home country factors, Home-Host country factors, Host
country factors, or Entrant factors as show in Figure 7.2.
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Figure 7.2: Contingency Relationships between Factors and Entry Mode Selection
7.3.1 Home Country Factors
Home country factors can seldom be affected by management decision. They are
external to the company and may be regarded as parameters of the entry mode decision
(Root 1987). Long term orientation and uncertainty avoidance are two dimensions in
Hofstede’s national culture framework. They are not treated as Entrant factors because
these factors “affect the implicit models in people’s minds of what the act of organizing
means” on the national level (Hofstede 1994).
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7.3.1.1 Home Market Attractiveness
Market in the home country influences a company’s choice of entry mode (Kogut
and Singh 1988; Root 1987). International business provides opportunities for contractors
seeking to expand business and to cushion local and regional market fluctuations. To
many construction firms, international revenue is an effective and necessary
complementation to their domestic operation. If the domestic market is large and demand
is stable, many firms will focus on the domestic market and become less interested in any
forms of international business, like Japanese contractors focusing on their domestic
market for a long period of time before their economic recession, or the withdraw from
global markets like what American contractors have been doing in the past decade. In
contrast, to contractors who have suffered from dwindling or sluggish domestic markets,
it is important to have stable overseas revenue to offset their domestic business
downturns. ENR (2004) cited from Mehmet Artun, deputy chairman and managing
director of GAMA Industry Inc., “The economic crisis that hit Turkey four years ago
caused a drastic decrease in the domestic investments. … This situation forced us to look
for new countries to work in and to shift our resources more to the international market.”
Since the European market became stagnant, European construction firms have been
acquiring construction firms around the world.
Permanent entry modes feature more sustainable business compared with
opportunistic project bidding (refer to Chapter 4), and can provide a better vehicle to
sustain overseas revenue. Also, with permanent entry more resources can be transferred
from dwindling or fluctuating domestic market to sustain global revenue.
It is therefore hypothesized that:
H1: When other variables are held constant, construction firms that enjoy
an attractive home country market are less likely to enter foreign markets
with permanent entry modes.
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7.3.1.2 Long Term Orientation
Hofstede (2001) proposed five dimensions of cross-cultural managerial
differences to capture the relationship orientation of managers: power distance,
uncertainty avoidance, individualism, masculinity, and long term. The scorings on these
five dimensions of 10 sampled countries are shown in Table 7.3. Hofstede (2001) gave
the definition of long term orientation as it “stands for the fostering of virtues oriented
towards future rewards, in particular, perseverance and thrift. Its opposite pole, short term
orientation, stands for the fostering of virtues related to the past and present, in particular,
respect for tradition, preservation of face and fulfilling social obligations.”
Table 7.3: Cultural Dimension Scores (0 = Low, 100 = High)
Orientation
Arab countries
France
Germany
Great Britain
Netherlands
Hong Kong
Indonesia
Japan
Brazil
Mexico
USA
West Africa
Power
Distance
80
68
35
35
38
68
78
54
69
81
40
77
Uncertainty
Individualism
Avoidance
68
38
86
71
65
67
35
89
63
80
29
25
48
14
92
46
76
38
82
30
46
91
54
20
Masculinity
53
43
66
66
14
57
46
95
49
69
62
46
Long-term
31
25
44
96
80
65
29
16
Localized permanent entry modes reflect the entrants’ long term orientation where
construction firms patiently establish a localized organization, and cultivate enduring
work relationships with local clients, suppliers, and subcontractors with an aim to become
a local firm and benefit from the long term growth of the local market. Mobil entry, in
contrast, with contractors based in the head office or an office in adjacent countries,
focuses on obtaining opportunistic projects. The entrants may not have confidence in the
sustainability of the local market and only focus on short term opportunities. They
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therefore do not put a lot of resources into overseas markets and prefer modes of
flexibility so that once there is instability in the market, or better business opportunity
elsewhere, they can easily withdraw and move away.
It is therefore hypothesized that:
H2: When other variables are held constant, contractors from countries
with a long term orientation are more likely to use permanent entry modes
to penetrate selected markets.
7.3.1.3 Uncertainty Avoidance
The research of Hofstede (2001) shows that managers from different countries
differ substantially in uncertainty avoidance. In countries with a low score on uncertainty
avoidance, where structures and rules are often less clear, unwritten, and imposed by
tradition, people are less concerned with taking risk. In contrast, in countries with high
uncertainty avoidance, people prefer structured situations and clear rules of behavior. A
nation with strong uncertainty avoidance can be called rigid; one with weak uncertainty
avoidance, flexible.
Pan and Tse (2000) contended that entrants whose host country has a high
uncertainty avoidance score would be more cautious and try to minimize risk exposure.
They are more inclined to specify their activities in the form of contracts and less willing
to subject themselves to unpredictable outcomes as in the case of an equity mode. This
proposition, however, neglects that an equity mode has a more structured organization
than non-equity modes, but also confuses “uncertainty avoidance” with “risk avoidance”.
Hofstede (2001) explains that:
“More than toward an escape from risk, uncertainty avoidance leads to an
escape from ambiguity. Uncertainty-avoiding cultures shun ambiguous
situation. People in such cultures look for structure in their organizations,
institutions, and relationships, which makes events clearly interpretable
and predictable. Paradoxically, they are often prepared to engage in risky
behavior in order to reduce ambiguity.”
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Permanent entry involves a more rigid hierarchical organization that can also help
develop more enduring local relationships than mobile entry that is based on a network of
temporary contractual relationships within and outside the project based organization.
Although subject to more investment risk, permanent entrants can accumulate more local
market knowledge and reduce perceived uncertainty than temporary entrants.
It is therefore hypothesized that:
H3: When other variables are held constant, contractors from countries
with a high uncertainty avoidance are more likely to use permanent entry
modes to penetrate selected overseas markets.
7.3.2 Home Country-Host Country Factors
Some factors that are specific to a pair of countries can determine which type of
entry is preferred: permanent entry or mobile entry. These factors are grouped as Home
country – Host country factors and include trade link, cultural distance, colonial link, and
language proximity.
7.3.2.1 Trade Link
A longer diplomatic history can lead to a greater understanding between
international contractors’ home country and host country. This would enable the entrant
to set up its investment in the host market. Such understanding would foster efficient
working relationships between the entrant and the local government (Tse et al. 1997).
Accordingly, these firms would be more likely to adopt permanent entry modes.
Pan and Tse (2000) proposed that the flow of business between two countries is a
direct indicator of the extent of interaction between the two countries. The higher the
volume of bilateral business, the more knowledge firms have accumulated about the host
country market, and the more confident they are in adopting permanent modes. Therefore,
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the stronger the trade relationship is, the more possible that entrants will use permanent
entry modes.
As part of international trade in service, international construction is constrained
or supported by treaties like WTO, NAFTA, ASEAN, and EU. Countries within the same
service trade organization have less barriers against the entries of contractors from other
membership countries.
Therefore, it is hypothesized that:
H4: When other variables are held constant, if the host market and home
country have a close trade link, construction firms are more likely to use
permanent entry modes to penetrate the host market.
7.3.2.2 Cultural Distance
Socio-cultural distance has been widely analyzed by researchers regarding entry
mode selection (Erramilli et al. 2002; Erramilli and Rao 1993; Luo 2001). The cultural
distance attempts to conceptualize and, to some degree, measure the cultural distance
between countries and markets (Hallen and Wiedersheim-Paul 1979).
Kogut and Singh (1988) argue that the information acquisition activity will be
proportional to the cultural distance between home and host countries. When
management moves to a country that is culturally similar to the home country, it may
already posses most of the information to operate in the market; however when entering a
market with an unfamiliar foreign culture, it may have difficulty in imposing subjective
judgment to determine how people should behave and evaluating hard-to-quantify inputs
and result (Erramilli and Rao 1993; Gatignon and Anderson 1988). Therefore, more
resource commitment is needed with high cultural distance between the home and host
countries.
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Project based entry does not require expatriates to understand local culture
thoroughly. With well defined project goals and the mutual understanding of the possible
conflicts between parties of a different nationality, people can bear the short term cultural
difference. On a permanent basis, however, cultural distance becomes a more significant
issue. The permanent organization must understand local culture very well to establish
enduring cooperation with local parties, and internally manage relationships between
local employees and expatriates.
It is therefore hypothesized that:
H5: When other variables are held constant, a construction firm is more
likely to use permanent entry modes to penetrate markets that have smaller
cultural distance with the firm’s host country.
7.3.2.3 Colonial Link
Colonial linkage variables are often used by economists to measure similarities in
political or legal institutions. In international construction, colonial link also indicates a
traditional cross border trade. The internationalization process of the construction
industry as reviewed in Chapter 4 indicated that in the original period of the global
construction market, colonial countries were comfortable overseas markets, especially for
European contractors. Therefore, this link often implies that the two countries have
political and legal proximity and long term trade relationship in construction, and
therefore the contractor can gain a location advantage.
Regarding these traditional, and legally and politically similar markets, entrants
may have more confidence and be willing to commit more resources. That is, they may
prefer permanent entry modes to mobile entry modes.
It is therefore hypothesized that:
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H6: When other variables are held constant, a contractor is more likely to
use permanent entry modes for markets which have a colonial link with
the entrant’s home country.
7.3.2.4 Language proximity
Language is a very common barrier for companies marketing their products and
services in international markets (Karakaya and Stahl 1991). Communication plays such
an important role on construction sites where multiple organizations work together, that it
is a significant location advantage for international contractors to know the local
language (Ostler 1998). This brings a comfort factors into operating in a new territory
(Ostler 1998).
In the global construction market, it is very common for contractors to do
business in markets where the same or similar languages are spoken. For example,
Spanish contractors pursue business in Latin America where Spanish is spoken, and
Chinese contractors have a significant market share in Singapore and Hong Kong where
Chinese is the common language. Speaking the local language, contractors not only tend
to enter the market, but also establish permanent residence because they feel more
comfortable in both marketing and project operations. Using permanent entry modes can
also help them better exploit this location advantage.
It is therefore hypothesized:
H7: When other variables are held constant, contractors are more likely to
use permanent entry modes for selected overseas markets with language
proximity.
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7.3.3 Host Country Factors
Some host country specific factors can impact priorities between permanent entry
and mobile entry. These factors are grouped as host country factors and include host
market attractiveness, investment risk, entry restriction, and competitive intensity.
7.3.3.1 Host Market Attractiveness
Market attractiveness (size and growth) has been an important determinant of
overseas investment. In large and fast growing markets, investment modes are expected
to provide greater long term profitability to a firm, compared to contractual entry modes,
through the opportunity to achieve economies of scale ad consequently lower marginal
cost of production (Sabi 1988). Market growth in the host market affects expected net
returns and firm growth during international expansion. This in turn affects resource
commitments, strategic orientations, and the entry mode decision. In markets with high
growth, firms prefer a long term presence (Agarwal and Ramaswami 1992). In contrast,
MNEs may favor a mode of entry entailing less resource commitment when the sales
growth of a target industry is declining (Luo 2001). With other things being equal, MNEs
are expected to favor low resource commitment modes of entry when a host market is in
its embryonic or declining state (Hill et al. 1990).
In emerging markets featuring high market growth, but with less attractive
investment environment, another benefit offered by these target markets is the
opportunity for higher returns (in excess of the risks taken) due to the presence of greater
market imperfections for larger organizations who have the resources required to bear the
risks associated with entering low potential markets (Lambkin 1988).
In the construction market, firms will commit more resources and intend to
establish permanent entry modes to exploit the growth of the host country as a location
advantage rather than enter on an opportunistic and contractual basis.
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It is therefore hypothesized that:
H8: When other variables are held constant, construction entrants are more
likely to use permanent entry modes for attractive overseas markets.
7.3.3.2 Investment Risk
The investment risk in a host country reflects the uncertainty over the
continuation of present economic and political conditions and overall policies which are
critical to the survival and profitability of a firm’s operations in that country. In countries
with high investment risk, a firm would be better off not entering; but if it does, it may
favor the use of non-investment options (Agarwal and Ramaswami 1992). Permanent
entry modes are on-going processes, and therefore it is hard to forecast and insure against
all the risks involved. Foreign firms have to manage these risks as they emerge. Foreign
firms adopting mobile modes have a better chance to manage their risks since the
duration is often shorter, making it easier to foresee the types and severity of risks.
When investment risk is high, MNEs could do well to limit its exposure to such
risk by restricting its resource commitments (Buckley and Casson 1998; Kim and Hwang
1992). Political risk may discourage FDI and encourage the use of arm’s length contracts
instead. Root (1987) has identified four types of investment risk that have a significant
impact on an MNE’s entry decision. They are general political risk (e.g., instability of
political system), ownership / control risks (e.g., expropriation, intervention), operations
risks (e.g., price control, local content requirements), and transfer risk (e.g., currency
inconvertibility risk, remittance control). When these risks are high, the MNE might be
well advised to limit its exposure to them by reducing this resource commitments and
increasing its ability to exit from the market quickly without taking a substantial loss
(“flexibility”), should the environment worsen (Hill et al. 1990). Although large MNEs
are usually able to bear some risks, empirical evidence indicates that the willingness of
MNEs to commit equity in a foreign market is inversely related to perceptions of
159
uncertainty of doing business there (Gatignon and Anderson 1988; Stopford and Wells
1972).
International construction is exposed to multiple types of risks. Its exposure to
risks is similar to general businesses.
It is therefore hypothesized that:
H9: When other variables are held constant, construction firms are more
likely to use permanent entry modes for overseas markets of low
investment risk.
7.3.3.3 Entry Restriction
Gomes-Casseres (1990) noticed that numerous research has ignored the effects of
host government ownership restrictions on MNE choices. For example, such restriction
can make an MNE form a joint venture even where transaction cost analysis would
predict a wholly-owned subsidiary. Brouthers (2002) confirmed that in some countries,
the institutional structure may create situation where the transaction cost predicted mode
choice may not be the allowed choice.
This “preference-restriction-last choice” paradigm is overwhelmingly significant
in the construction industry. To protect domestic construction market, barriers related to
ownership requirements, permit systems, rating systems, and licensing systems that
prevent permanent residence of foreign contractors are very common in a number of
significant markets. These constraints can sometimes limit entrants only to projects which
are normally funded by international organizations (e.g., World Bank, and regional
development banks) and foreign governments, projects under special governmental treaty
(USA-Japan public project program), and projects that domestic contractors are incapable
of completing.
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ENR (2004) cited comments from Hochtief that “entry is hampered by legal
constraints and local market conditions…” For new entrants, they may have to use
mobile entry modes even if they prefer permanent entry.
Therefore, it is hypothesized that:
H10: When other variables are held constant, foreign contractors are less
likely to use permanent entry modes for markets with high entry
restriction.
7.3.3.4 Competitive Intensity
Industrial organization economics assumes that the increase in number of firms
within an industry will boost competition, thus lessening the level of profitability and
slowing down the average growth rate of an individual firm’s sales (Scherer and Ross,
1990). ENR (2004) introduced a case study about Balfour Beatty’s withdrawal from
China to avoid the competition there.
Harrigan (1985b) argued that any reduction in strategic flexibility may be unwise
when competition is volatile, which requires quick responses from the firm. In such
markets, firms tend to be less profitable and therefore do not justify internal organization
which involves heavy resource commitments. There is a substantial difference between
resource commitments between permanent and mobile entry modes for international
construction markets. This gives rise to different strategic flexibility of each type of entry
mode. Because resource commitments limit a MNE’s ability to adapt to changing market
circumstances without incurring substantial sunk costs, an MNE can be theorized to favor
entry modes involving low resource commitments and high flexibility when competitive
pressures in the host market are intense (Hill et al. 1990).
It is therefore hypothesized that:
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H11: When other variables are held constant, construction firms are less
likely to use permanent entry modes to penetrate overseas markets
involving high competitive intensity
7.3.4 Firm Factors
Some factors that are specific to contractors can set a priority between permanent
entry and mobile entry. These factors are grouped as entrant factors. They include firm
size and multinational experience of the entrant.
7.3.4.1 Firm Size
Asset power is necessary for firms to engage in international expansion and
compete in overseas markets. Resources are needed for absorbing the high costs of
marketing, enforcing contracts, and achieving economies of scale. The size of the firm
reflects its capability for absorption of these costs. In other words, the size of the firms is
expected to be positively correlated with its propensity to enter foreign markets in
general, and to choose equity entry modes in particular. While the preference for sole
ventures is not surprising, the choice of joint ventures may be explained by the fact that a
larger organization may be less concerned than a smaller organization with the potential
possibility of exploitation by the host country partner (Doz 1988). Empirical evidence
also confirms that larger firms prefer equity entry modes (Agarwal and Ramaswami
1992).
Unlike most other service industries, the construction industry is capital
–intensive. In international projects, contractors are often required to make down
payment and sometimes take project equity or help in acquiring project financing. This
makes a threshold of asset power for construction firms to enter the worldwide market.
Permanent presence requires more assets than short term construction projects as long
term employees are kept, equipment is acquired and maintained, and in some countries,
162
high registration capital is required (e.g., US$ 30 million registration capital for a First
Class construction firm in China).
It is therefore hypothesized that:
H12: When other variables are held constant, a larger construction firm is
more likely to choose permanent entry modes for overseas markets.
7.3.4.2 Multinational Experience
Experience is believed to be of great importance in entry mode selection. The
experiential learning in the global expansion process does not reduce the cultural distance
between home and host country, but certainly enhances the firm’s experience in operating
a business in a given foreign market (Root 1987). Experiential learning endows the firms
with a greater ability to detect the opportunities, reduces the uncertainties of going abroad
and makes the international investor more willing to commit a larger amount of resources
(Arora and Fosfuri 2000). In the accumulation process of knowledge and experience,
firms may develop new capabilities to adapt the risky and competitive environment in an
emerging market (Lin 2000).
The market knowledge and international experience of firms influences their
ability and willingness to invest resources. Firms are initially risk averse when entering
new markets, but as they acquire knowledge in a foreign market and gain more insight
into market risk, competitive pressure, and returns, they become more confident and
aggressive, manifesting into a willingness to commit more resources (Lin 2000). Firms
without foreign market experience are likely to have greater problems in managing
foreign operations. They have been observed to overstate the potential risks, while
understating the potential returns of operating in a foreign market. This makes the choice
of non-investment modes more probable for these firms (Agarwal and Ramaswami
1992).
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The transfer of experience is relatively easy from country to country. The
experience that the construction firms gain in the worldwide market can help them enter a
specific market. In the construction industry, or the entire service sector, the gradual
incremental model does not hold true (Erramilli and Rao 1993). In fact, it is observed that
many construction firms establish sole ventures once they enter a strange market
(Abdul-Aziz 1995). It appears that the general overseas experience does play a role when
a firm enters a new market.
It is therefore hypothesized that:
H13: When other variables are held constant, more experienced
construction firms are more likely to use permanent entry modes for
overseas markets.
7.4 Interaction Effects
From the perspective of entrants, most of the above factors provide rationale for
choosing the optimal entry mode except that entry restriction imposes constraints upon an
entrant’s preliminary selection based on all the other variables. Because of entry
restriction, the preliminary selection result based on other factors may change. For
example, with other factors held constant, the entrant may prefer permanent entry modes
to mobile entry modes in an attractive market (Hypothesis 1). However, this degree of
preference may vary under different magnitudes of entry restriction. As a result, when the
local market involves many institutional constraints upon permanent entry modes and
few upon mobile entry modes, the entrant may possibly choose a mobile entry mode.
To combine the different effects between entry restriction and other factors in
influencing the selection between permanent entry and mobile entry, a two step decision
process is proposed like that of Gomes-Casseres (1990): 1) an entrant first prioritizes
between permanent entry and mobile entry based on factors excluding entry restriction,
164
and 2) it then re-ranks the two options with consideration of feasibility that is determined
by entry restriction.
In statistical language, this means that the slope of the relationship between any
factor except entry restriction and the independent variable depends on the value of entry
restriction. Therefore the interaction effects between entry restriction and any other factor
need to be examined.
7.5 A Synthesis of Influencing Factors
The entry mode selection influencing factors (predictors) and their associated
hypotheses are summarized in Table 7.4. These hypotheses can be explained by the OLI
paradigm, institutional / cultural theory, and bargaining power theory. As we have
conceptualized the entry mode selection as a two step decision process where contractors
first prioritize their entry modes according to optimization predictors (predictors
excluding entry restriction), and then screen out infeasible entry modes according to the
constraint predictor (entry restriction). The interaction effects in the table are used to
combine the influences of predictors at different stages. Directions of each hypothesis are
also indicated in the table, where “+” means the greater the predictors are, the more likely
that an entrant will choose the entry mode, and “-“ means that the greater the predictors
are, the less likely that an entrant will choose the entry mode.
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Table 7.4: The Hypotheses (Main Effects)
Predictors
Main effects
Home market attractiveness
Long term orientation
Uncertainty avoidance
Cultural distance
Trade link
Colonial link
Language proximity
Host market attractiveness
Investment risk
Entry restriction
Competitive intensity
Firm size
Multinational experience
Entry mode
Permanent
Mobile
+
+
+
+
+
+
+
+
+
+
+
+
+
-
7.6 Summary
This chapter first reviewed all related schools of theories that provide rationale for
international market entry mode selection, and then identified 13 factors that can shed
light on the dichotomical selection between permanent entry and mobile entry. Based on
the applicable theories and previous research findings, hypotheses were proposed to
explain how international construction firms make selection between permanent entry
and mobile entry. Interaction effects between entry restriction and other predictors were
proposed for exploration based on a conceptual two stage decision process. The next
chapter will test these hypotheses and develop an entry mode selection model with
empirical data.
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CHAPTER 8
THEORY TESTING
This chapter first introduces the methodology for theory testing (Section 8.1). It
then proposes suitable measures for the dependent variable (entry mode) and the
predictors identified in Chapter 7 (Section 8.2), collects data from multiple sources, and
presents the results of a binary logistic regression analysis to test the hypotheses and
develop an entry mode selection model for international construction markets (Section
8.3.1). Interaction effects are also incorporated into the model and analyzed. Whether the
model is normative is explored with a t-test (Section 8.3.2). Finally, managerial
implications are developed (Section 8.4).
8.1 Methodology
This section includes the sampling method and analytical approach for hypothesis
testing.
8.1.1 Sample
The global construction market is dominated by a few large-sized contractors and
many medium-sized contractors in terms of international revenue (see Chapter 4). Most
of the active international contractors are captured in the annual ENR Top 225
International Construction Firms. For example, in 2001 ENR ranking the 225th largest
international contractor (SECOR International Inc., USA) had an international revenue of
only 1 million US dollars. It can therefore be concluded that ENR provides a sample of
both large- and medium-sized international contractors.
167
This research used the rankings by ENR for the decade from 1992 through 2001
and found that there were 522 international contractors who were included in the ENR
list for at least one of the years. However, not all these contractors reported the details of
their entry modes. This research only obtained the entry mode details of 122 (see
Appendix Q) out of the 522 contractors which were summarized in Appendix N. Most of
them are based in North America, Europe, and especially Asia (see Appendix L) as
summarized in Table 8.1. To account for regional difference in economic growth (for
example, most developed countries are located in North America and Europe, and most
developing countries are in Asia), this research controls for home country economic level
as a control variable. Social, political, cultural, legal and other differences in regions have
already been addressed by some home market factors and home-host market factors (for
example, the countries in the same region usually share common languages and have less
cultural distances between them while those from different regions do not).
Table 8.1: Contractors’ Original Regions
Original regions
North America
Latin America
Caribbean
Europe
Middle east
Asia/Pacific
North Africa
Central/South Africa
Total
Number of contractors
28
1
0
27
5
59
1
1
122
ENR reports the presence of leading international contractors in approximately
150 countries each year. However, not all of these countries are included in this research,
and sometimes it is difficult to collect the legal, political, economic, and industry
indicators of some small countries. To focus the research, 42 markets (see Table 5.4 in
Chapter 5) were selected to examine foreign contractors’ entry into them. These 42
countries are identical to those examined in Chapter 5 related to their legal requirements
regarding various entry modes. The regional distribution of these countries and the
168
percentage of their construction spending over the total construction spending of each
region are summarized in Table 8.2. It is obvious that these sampled countries constitute
the majority of each regional market (except Africa) as well as the overall global
construction market.
Table 8.2: Regional Distribution of Sampled Markets
Regions
North America
Latin America
Europe
Middle east
Asia/Pacific
Africa
Total
Number of
Construction
Construction
sampled spending of sampled spending of regions Percentage
($ mil)
markets
markets ($ mil)
2
736,888
736,888
100%
6
112,539
129,069
87%
11
778,785
1,032,755
75%
7
62,373
78,214
80%
12
1,072,239
1,120,586
96%
4
27,849
158,160
18%
42
2,790,673
3,255,673
86%
8.1.2 Analytical Approach
There are two models with associated hypotheses tested in this research: 1) a
descriptive contingency model that correlates internal and external environmental factors
to the entry mode group (permanent entry versus mobile entry) selected by the
international contractor; and 2) a normative model that correlates entry mode selection to
market entry performance (e.g., if a contractor selects an entry mode according to the
suggestion of the contingency model, better performance can be achieved).
To test the first model with a binary categorical dependent variable, the binary
logistic regression method was used. It is introduced and estimated for its suitability for
this purpose in Section 8.1.2.1. A t-test was used to test whether there is significant
correlation between the entry mode selection model and entry performance. One variable,
Fit, is used to describe whether a contractor selected the entry mode suggested by the
model. If the mode selected is the same as what the model suggests, Fit = 1; otherwise Fit
169
= 0. The t-test is applied to test if firms who choose the model-predicted modes can
perform better on average than those who do not. The relationship between the variables
and the analyses are depicted in Figure 8.1.
Figure 8.1: Relationships between Independent and Dependent Factors
8.2 Measurement of Variables
8.2.1 Measurement of the Dependent Variable
In the entry mode selection model, the dependent variable is the entry mode
adopted by entrants. This is a binary categorical variable, which has two categories:
mobile entry and permanent entry. The category of mobile entry includes JV project, SV
project, and BOT / Equity project; the category of permanent entry includes
Representative office, Branch office / company, SV company, and JV company (see
Chapter 6).
There are two major data sources providing information about the selected 122
international contractors’ entry modes regarding the 42 selected markets:
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1) ENR reports which countries each international contractor’s revenue comes from for
every year (see Appendix M). This, however, does not tell which entry mode is used
for each market. For example, ENR reported that Bechtel had revenue from China in
2000, but the operation can be based on either a permanent entry mode or a mobile
entry mode;
2) Other resources like the website of each contractor, databases like Who Owns Whom,
annual reports of public firms, and other information sources like Hoovers.com and
industry journal articles identify in which countries a contractor has a permanent
residence (see Appendix K). These sources tell whether an international contractor
has used a permanent entry mode regarding a specific market. For example, both
ENR’s website (www.enr.com) and an article from an industry journal indicated that
Bechtel has a JV company in China that was founded in 1979.
By comparing Sources 1 and 2, it can be inferred whether an international
contractor used permanent entry or mobile entry regarding a specific market:
z
If Source 1 indicates that an Entrant A had revenue from Market B in any year, and
Source 2 indicates Entrant A did not use any permanent entry mode for Market B, it
can be concluded that Entrant A used a mobile entry mode for Market B (the data
was only collected for revenue distributions for contractors from 1992 through 2001,
so any mobile entry that occurred beyond this period may be missed);
z
If Source 2 indicates that Entrant A used a permanent entry mode for Market B, then
no matter whether Source 1 indicates Entrant A had revenue from Market B in any
year, it can be concluded that entrant A used a permanent entry mode for Market B;
and
z
If neither Sources 1 nor 2 indicates entrant A had business transactions or presence in
Market B, it can be concluded that Entrant A has not entered Market B.
Entry performance needs to be measured for the t-test. It is recognized that entry
performance is a very broad concept (Brouthers 2002) and influenced by multiple factors
other than entry mode selection (e.g., marketing). This research proposes average
171
international revenue from 1992 through 2001 as the measure for entry performance
under the assumption that if a contractor keeps using the right entry modes for its
overseas markets through a long period of time, it can gradually grow in terms of
international revenue. It is acknowledged that this measure is not ideal, but it was
selected as the most appropriate indicator based on data availability and is a limitation of
this study.
8.2.2 Measurement of Independent Variables
The 13 independent variables (predictors) are measured in this section.
8.2.2.1 Home Country Market Attractiveness and Host Country Market
Attractiveness
Market attractiveness is measured with two constructs: one is market size and the
other is market growth. ENR (1998, 2000) reported the construction spending in US
dollars of approximately 150 countries from 1996 through 2000 (see Appendix G). To
obtain the data, ENR combined many sources including the International Monetary Fund,
the Asian Development Bank, the Inter-American Development Bank, and the European
Bank for Reconstruction and Development. Much of the data was based on specific
studies or statistics on individual country’s construction spending. Where data was not
available, estimates were made based on analyses of each country. Influences from
countries’ currency fluctuation problem were adjusted based on 1996 (ENR 1998) or
1998 (ENR 2000) levels respectively. Unfortunately, the same data for other years in the
past decades were not reported. In the two issues of ENR (November 30 / December 7,
1998 and December 4, 2000), the data for 1998 were duplicated. This provides a basis to
adjust currency fluctuation for all years to a single year level. For this analysis, the data
reported in ENR 2000 were adjusted to the 1996 level. Regarding each market, the mean
172
of these five years of construction spending is used as a measure of market size, and the
average annual growth during the five years is used to measure market growth.
8.2.2.2 Long-term Orientation, Uncertainty Avoidance, and Cultural Distance
Hofstede (1980; 2001) conducted perhaps the most comprehensive study of how
values in the workplace are influenced by culture. He not just proposed the concepts of
power distance, uncertainty avoidance, individualism, masculinity, and long-term as five
dimensions in his national culture paradigm, but also implemented extensive surveys to
quantify different countries along these dimensions (see Appendix A). All dimensions are
scored with a 0 (low) to 100 (high) scale. For long-term, high ranking score indicates the
country prescribes to the values of long-term commitments and respect for tradition; for
uncertainty avoidance, a high ranking score indicates the country has a low tolerance for
uncertainty and ambiguity (Hofstede 2001). Recent replications of Hofstede’s original
study found that there are no significant changes in these country scores (Hofstede 1994).
Different from long-term orientation and uncertainty avoidance which are absolute values
in association with specific countries, cultural distance measures the culture related
difference between a pair of countries. For a given country-pair, the cultural distance is
calculated as the arithmetic average of the deviations in Hofstede’s five dimensions,
correcting for the overall variance of each of these four dimensions (Arora and Fosfuri
2000; Kogut and Singh 1988). The formula is as follows:
{
}
CD jk = ∑ (I ij − I ik ) / Vi / 4
5
i =1
2
Where Iij is the index for the ith cultural dimension and jth country, Vi is the variance of
the index of the ith dimension, and CDjk is the cultural distance of the jth country from
the kth country. The values of each cultural distance pair are shown in Appendix S.
173
8.2.2.3 Trade Link
In this research, trade link is measured with a dummy variable. If a pair of
countries are both members of a bilateral or multilateral trade agreement / organization,
the value of this dummy variable is 1, otherwise it is 0. The following trade agreements
are believed to influence the entry mode selection decision of international contractors:
z
EU: European Union
z
NAFTA: North America Free Trade Agreement
z
GCC: Gulf Cooperation Council
z
ASEAN: Association of Southeast Asian Nations
z
SADC: Southern African Development Community
z
Japan-USA: 1988 Trade Act
z
EU-USA: European Union - United States Annual Summits
WTO (World Trade Organization) is not included in the list because all countries
investigated in this research (see Table 5.4 in Chapter 5) are WTO members. Besides, the
sector-specific commitments (“construction and related engineering”) of each WTO
member country are considered in another variable: entry restriction. The values of the
binary variable for each country pair are shown in Appendix D.
8.2.2.4 Colonial Link and Language Proximity
In this research colonial link is a relationship between two countries, independent
of their level of development, in which one has governed the other over a long period of
time and contributed to the current state of its institutions. It is measured with a dummy
variable. If a pair of countries has a colonial link, the value of this dummy variable is 1;
otherwise, it is 0. Language proximity is a relationship between two countries who share
common languages. In this research, Language proximity is also measured with a dummy
variable. If a pair of countries share at least a common official language, this dummy
variable is 1, otherwise, it is 0.
174
A French based research institute on the international economy, Centre d’Etudes
Prospectives et d’Informations Internationales (CEPII) has built and made available a
dataset providing useful data for empirical economic research including colonial link and
language proximity (See Appendix C). The current version of the CEPII dataset contains
information for 225 countries including all the 42 markets investigated in this research.
8.2.2.5 Investment Risk
Investment risk is a broad risk comprising of multiple macro level risks including
political, economic, and legal risks. The annual credit risk ratings by the Institutional
Investor from 1992 through 2001 are used to measure the investment risk in this research.
The scores are based on ratings provided by 75 to 100 leading international banks. This
risk rating score is on a 0 – 100 scale where 0 represents the least creditworthy countries
and 100 represents the most creditworthy countries. Although the Institutional Investor
credit ratings are based upon bankers’ opinions, previous studies have confirmed that this
risk rating is a suitable comprehensive measurement of investment risk (Cosset and Roy
1991). Regarding each market, the mean of the scores for 1992 through 2001 is used as a
measurement of the investment risk (see Appendix B).
8.2.2.6 Entry Restriction
There are basically two types of barriers that a host government can exert upon
international contractors’ entry mode selection: legal barriers for entry modes, especially
those related to ownership requirements; and “other barriers”. This research uses the
scale in Table 8.3 to measure the strength of legal barriers of the selected 42 countries.
The information regarding these barriers comes from each country’s
Sector-Specific Commitments for Construction and Related Engineering as a WTO
175
member country, and major laws and regulations about foreign investment (see Appendix
R).
Table 8.3: Scale to Measure Legal Barriers
Rating
4
3
2
1
0
Condition
SV is not allowed, and neither is JV with foreign control;
SV is not allowed, but JV with foreign control is;
Some other entry mode(s) (except SV and JV company) are not allowed (e.g., BOT);
All entry modes are conditionally allowed (e.g., accessibility regarding project types or client types);
All entry modes are unconditionally allowed.
In the construction industry of many countries, other barriers can sometimes be
stronger than legal barriers. In the construction industry, they include:
z
Permit / approval system;
z
Rating / qualification system;
z
Mandated / institutional project share or size control (e.g., bidding discount
for local bidders, traditional JV in practice);
z
Strict registration capital requirement (e.g., large registration capital required
that cannot be used throughout projects);
z
Expatriation of profit / tax condition; and
z
Mobility of resources (e.g., executive / management qualification,
professional licensing system, labor / material / equipment import / export
constraint).
This research assumes that each of the above barriers has the same amount of effects in
restricting a foreign contractors’ entry. The scoring is the sum of occurrences of the
above items for a specific country, so it ranges from 0 (no other barriers) to 6 (strongest
other barriers). The information about each country regarding these barriers comes from
an investigation of each country’s construction systems (see Appendix R).
Similar to the calculation of cultural distance, the summated Entry restriction is
measured as the arithmetic average of the deviation of each country from the most open
market (0 for legal requirement and 0 for other barriers) in the two scores, correcting for
the overall variance of each of these two dimensions. The formula is as follows:
176
⎛I2 I2 ⎞
RHGi = ⎜⎜ 1i + 2i ⎟⎟ / 2
⎝ V1 V2 ⎠
Where RHGi stands for the entry restriction value for Country i; I1i2 is the score of legal
barriers for Country i; I2i2 is the score of other barriers for Country i; V1 is the variance
of legal barriers scores of all the 42 countries; and V2 is the variance of Other barriers
scores of all the 42 countries. The RHG values for all selected country are shown in
Appendix F.
8.2.2.7 Competitive Intensity
Competitive intensity is associated with the number of competitors pursuing
projects in the market. In many markets, the segmentation of the construction market
opening to overseas contractors is limited. The competition is even more fierce among
leading contractors. There are 522 international contractors that have been included in at
least 1 year of the ENR Top 225 International Construction Firms from 1992 through
2001. ENR also reports the geographic distribution of business of these contractors.
Therefore, the number of these contractors in a specific market for a specific year is
available to measure the market competitive intensity (see Appendix E). The formula
used to calculate the index for competitive intensity is as follows:
CI j = (
2001
N
∑ ∑E
k =1992 i =1
ijk
) / 10
Where CIj stands for the competitive intensity for Market j; Ejkj is a binary variable that is
1 when Contractor i had revenue from Market j in year k, and 0 when Contractor i had no
revenue from Market j in year k (see Appendix M); N is the number of international
construction firms that had revenue from Market j from 1992 through 2001 (522).
177
8.2.2.8 Firm Size
Firm size can be measured in multiple ways, e.g., employee number and quantity
of asset. Global revenue (including both international and domestic revenue) is used in
this research to measure firm size. ENR reports the global revenue for leading
construction firms for each year. The average of the global revenues of each of the
sampled 122 international construction firms from 1992 through 2001 is used as the
measure of firm size (see Appendix N). The assumption is that in general, only
large-sized firms can generate large revenue. This may not always hold true for the
construction industry because some medium-sized contractors can generate large revenue
when performing a mega project(s). However, with averaging the ups and downs of
contractors’ global revenues, this variable will approximate the real size of the firms.
8.2.2.9 Multinational Experience
It is assumed that 1) the more overseas markets a contractor enters, the more
multinational experience it has; and 2) the longer a contractor stays in overseas markets,
the more multinational experience it gains. The formula used to calculate the index for
multinational experience is as follows:
MEi = 1 /(
2001
M
∑ ∑E
k =1992 j =1
ijk
)
Where MEi is the multinational experience for Market i; Ejkj is a binary variable where it
is 1 when Contractor i had revenue from Market j in Year k, and is 0 when Contractor i
had no revenue from Market j in Year k (see Appendix M); and M is the number of
markets included in ENR’s survey (165).
178
8.2.2.10 Fit
Fit is an independent variable used to test the hypothesis related to entry mode
selection based on the model and entry performance. This is a dichotomous variable. It
has a value of 1 if the binary logistic regression analysis correctly predicted a firm’s entry
mode regarding a specific market, and 0 if the prediction is incorrect.
8.2.3 Control Variable – Home Country Economic Level
This research uses the World Bank’s classification schemes of economies
(countries) to measure economic growth. This scheme has extensively been used in
business and economics research. Economies are divided according to 2003 Gross
National Income (GNI) per capita, calculated using the World Bank Atlas method. The
groups are: 1) low income economy, $765 or less; 2) lower middle income economy,
$766 - $3,035; 3) upper middle income economy, $3,036 - $9,385; and 4) high income
economy, $9,386 or more (see Appendix J). The classification of the World Bank
involves all its 184 member countries that include all of the 42 countries selected to
investigate in this research. Because no international contractor sampled in this research
is based in a low income economy, home country economic level is in fact a variable of
three categories (lower middle income economy, upper middle income economy, and
high income economy).
8.3 Results
Prior to performing the logistic regression analysis, a correlation test was prepared
to investigate possible signs of multicollinearity. The existence of multicollinearity
inflates the variances of the parameter estimates, which may result in a lack of statistical
significance of individual independent variables while the overall model may be
significant. In the worse situation, multicollinearity may also result in incorrect signs and
179
magnitudes of regression coefficient estimates, and therefore incorrect conclusions about
relationships between independent and dependent variables. Table 8.4 reports the
intercorrelations of the measures used in this study. It should be noted that the interval
property is assumed to be met for dichotomous categorical variables including trade
alliance (0 or 1), colonial link (0 or 1), language proximity (0 or 1), and home economy
level (lower middle income, upper middle income, or high income economies). The result
illustrates a paradox of statistical significance versus practical significance. It is not
surprising to see that quite a few correlations are statistically significant because of the
large sample size (1998 data points). However, only 4 correlation coefficients have a
magnitude greater than 0.5 and none of them is greater than 0.8. Although it seems that
collinearity may not be a serious problem, further multicollinearity diagnostics were
conducted by calculating Variance Inflation Factors (VIFs) to confirm this (see Section
8.3.1).
8.3.1 Logistic Regression
A binary logistic regression analysis was performed with the data using SPSS 12
for Windows. Table 8.5 presents the results. There are 2 models developed in this study:
Model 1 has a specification without interaction terms while Model 2 includes interaction
terms. In Model 1, the Variance Inflation Factors (VIFs) for all predictors are less than
5.0, confirming that multicollinearity is not a serious problem. Including interaction terms
in the model can drastically increase the level of multicollinearity. To reduce
multicollinearity, all continuous independent variables were “mean centered” in
developing Model 2 (Jaccard and Turrisi 2003).
180
Mode
Home market size
Home market growth
Uncertainty avoidance
Long term orientation
Cultural distance
Trade link
Colonial link
Language proximity
Host market size
Host market growth
Investment risk
Entry restriction
Competitive intensity
Firm size
Multinational experience
Home country economic level
Descriptive statistics
**
Pearson Correlation
Sig. (2-tailed)
Pearson Correlation
Sig. (2-tailed)
Pearson Correlation
Sig. (2-tailed)
Pearson Correlation
Sig. (2-tailed)
Pearson Correlation
Sig. (2-tailed)
Pearson Correlation
Sig. (2-tailed)
Pearson Correlation
Sig. (2-tailed)
Pearson Correlation
Sig. (2-tailed)
Pearson Correlation
Sig. (2-tailed)
Pearson Correlation
Sig. (2-tailed)
Pearson Correlation
Sig. (2-tailed)
Pearson Correlation
Sig. (2-tailed)
Pearson Correlation
Sig. (2-tailed)
Pearson Correlation
Sig. (2-tailed)
Pearson Correlation
Sig. (2-tailed)
Pearson Correlation
Sig. (2-tailed)
Pearson Correlation
Sig. (2-tailed)
Mean
Standard deviation
Home country
economic level
Multinational
experience
Firm size
Competitive
intensity
Entry
restriction
Investment risk
Host market
growth
Host market
size
Language
proximity
Colonial link
Trade link
Cultural
distance
Long term
orientation
Uncertainty
avoidance
Home market
growth
Home market
size
Mode
Table 8.4: Correlation Matrix
1
-.126**
0
-0.037
0.097
.130**
0
.045*
0.046
.058**
0.009
-0.032
0.149
0.039
0.078
.063**
0.005
0.002
0.938
0.042
0.058
0.013
0.573
-.074**
0.001
.155**
1
-.083**
0
0.017
0.457
.160**
0
.122**
0
.066**
0.003
-0.002
0.938
-.120**
0
0.005
0.823
-0.019
0.394
.052*
0.02
0.026
0.247
1
-.718**
0
-.118**
0
0.001
0.954
.089**
0
.101**
0
.228**
0
-.069**
0.002
0.034
0.123
-.064**
0.004
-0.027
0.221
1
.126**
0
-0.023
0.299
-.141**
0
-.102**
0
-.207**
0
.069**
0.002
-0.01
0.655
0.038
0.092
0.02
0.375
1
.483**
0
-.244**
0
-.115**
0
-.075**
0.001
.073**
0.001
-.073**
0.001
0.03
0.18
.101**
0
1
-.318**
0
-.172**
0
-.156**
0
-.089**
0
-.065**
0.004
-.140**
0
.096**
0
.220**
0
0.022
0.326
.360**
0
-.076**
0.001
.514**
0
0.002
0.927
.282**
1
0
.061** -.068**
1
0.006 0.002
-0.002 0.011 -.116**
1
0.919 0.621
0
.172** 0.041 .518** -.268**
1
0
0.066
0
0
0.015 -.058** .325** -.229** .137**
0.506
0.01
0
0
0
-0.004 -.075** .079** .153** .216**
0
0.854
0.001
0
0
0
.120** .298** -.343** .231** .108** .076**
0
0
0
0
0
0.001
.090** -.150** -.044* .111** .153** 0.006
0
0
0.05
0
0
0.797
-0.019 .317** -.478** .268** -.485** -.253**
0.388
0
0
0
0
0
1.5661 375767 0.024 64.237 46.625 2.7513
0.4957 278319 0.0453 22.957 35.543 1.7984
-.053*
0.018
-0.027
0.221
-.061**
0.006
.153**
0
0.1562
0.3631
-.047*
0.036
-0.012
0.604
-0.034
0.13
.092**
0
0.0591
0.2358
Correlation is significant at the 0.01 level
*
1
1
.066** .074**
0.003
0.001
-.135** 0.022
0
0.316
.046*
0.042
0.04
0.061
-.080** 0.005
0
0.826
0.1151 81757
0.3192 159832
.098**
0
-.045*
0.042
-0.021
0.354
0.01
0.671
0.0423
0.0534
Correlation is significant at the 0.05 level
.174**
0
.065**
0.004
-0.001
0.965
.048*
0.031
57.542
21.516
1
.071**
0.002
0.018
0.432
.047*
0.036
-0.028
0.215
4.1837
3.2237
1
-0.029
0.202
.134**
0
-0.026
0.24
46.996
17.292
1
-.231**
0
.209**
0
3456.3
3751.3
1
-0.03
1
0.129
0.019 3.769
0.031 0.629
181
Table 8.5: Determinants of Entry Mode Selection: Binary Logistic Test (n=1998:
Mobile entry = 867; Permanent entry = 1131)
Variables
Constant
Main effect
Host country - specific factors
Home market size
Homemarket growth
Uncertainty avoidance
Long-term orientation
Host country - Home country factors
Cultural distance
Trade link
Colonial link
Language proximity
Home country - specific factors
Host market size
Host market growth
Investment risk
Entry restriction
Competitive intensity
Firm - specific factors
Firm size
Multinationalexperience
Control variables
Home country economic level
-Upper middle income economy
-High income economy
B
-1.155 ***
Model 1
S.E.
0.431
-1.55E-06 ***
10.729 ***
0.021 ***
0.003
2.23E-07
2.026
0.003
0.002
1.620
3.306
2.187
2.652
-1.49E-06 ***
10.982 ***
0.022 ***
0.004
2.272E-07
2.073
0.003
0.002
0.100 ***
-0.151
-0.471 **
-0.375 **
0.034
0.174
0.228
0.169
1.566
1.712
1.185
1.226
0.084 **
-0.047
-0.366
-0.499 ***
0.038
0.187
0.232
0.179
3.956E-07
0.665
-0.002
-0.068 ***
0.017 ***
4.05E-07
0.985
0.003
0.017
0.003
1.601 5.357E-07
1.196
0.104
1.960
0.003
1.210
-0.006
1.210
0.016 ***
4.9271E-07
1.078
0.004
0.118
0.004
0.000 ***
5.710 ***
1.587E-05
1.964
1.325
1.190
0.280
0.573
1.215
3.375
-0.674 **
0.849
Interaction effects
Entry restriction by Home market size
Entry restriction by Home market growth
Entry restriction by Uncertainty avoidance
Entry restriction by Long-term orientation
Entry restriction by Cultural distance
Entry restriction by Trade link
Entry restriction by Colonial link
Entry restriction by Language proximity
Entry restriction by Host market size
Entry restriction by Host market growth
Entry restriction by Investment risk
Entry restriction by Competitive intensity
Entry restriction by Firm size
Entry restriction by Multinational experience
-2 Log likelihood
P value
Cox & Snell R Square
Nagelkerke R Square
Hosmer and Lemeshow Test (p value)
Correct classification rate (%)
VIF
Model 2
B
1.177 ***
1.32E-04 ***
6.666 ***
-0.650 **
0.914
-4.61E-08
1.366
0.002
-0.001
0.037
0.026
-0.127
0.070
-2.36E-07
0.292
0.004
0.002
-1.99E-06
-0.511
2489.7
2.101E-42
0.115
0.155
0.376
64.76%
2451.8
1.762E-42
0.132
0.177
0.172
65.02%
**
*
***
*
*
***
S.E.
1.623E-05
2.165
0.285
0.580
7.8047E-08
0.637
0.001
0.001
0.011
0.065
0.075
0.083
1.2433E-07
0.459
0.002
0.001
5.6611E-06
0.688
182
Both models are significant since their p values are all very small and less than
0.001. In the goodness-of-fit test, the Hosmer and Lemeshow statistics of Model 1 and 2
(0.172 and 0.376 respectively) are larger than 0.05, indicating that there is insufficient
evidence to claim that the two models do not fit the data adequately. It seems that Model
2 is moderately superior to Model 1 with an improved correct classification rate, higher
Cox & Snell R Square, and Nagelkerke R Square. This indicates the value of
incorporating the interaction terms in the model. One may argue that the explained
variance increases very little by including the interaction terms, but the inclusion is not
solely important for explaining the variance in the dependent variable, but also
establishing the presence of the conditional relationship between the independent
variables and the dependent variables. These conditional relationships will be analyzed in
Section 8.2.1.2.
However, with the involvement of interaction terms, Model 2 cannot be used to
interpret the main effects of the independent variables, because the relationship between
an independent variable and the dependent variable now depends upon the value of the
conditional independent variable (Jaccard and Turrisi 2003). Hence the following
discussion about hypotheses (main effects) developed in Chapter 7 is based on Model 1
and the analysis regarding interaction effects and prediction is based on Model 2.
8.3.1.1 Main Effects
To test the 13 hypotheses developed in Chapter 7, 15 predictors were identified
because two hypotheses (H1 and H8) involve two separate measures individually.
Regarding each hypothesis, the regression result can either support the hypothesis or not.
Results of testing the main effects are summarized in Table 8.6. It can be seen that
among the 15 hypothesized relationships, 5 are fully supported, 8 are partially supported,
183
and only 2 are not supported. Also among these 15 predictors, 10 are found significant in
influencing the selection between permanent entry and mobile entry.
Table 8.6: Testing Results
Number Hypotheses
1
2
3
4
H1
H1
H2
H3
5
6
7
8
H4
H5
H6
H7
9
10
11
12
13
H8
H8
H9
H10
H11
14
15
H12
H13
Note:
Predictors
Home country - specific factors
Home market size
Home market growth
Long-term orientation
Uncertainty avoidance
Home country - Host country factors
Trade link
Cultural distance
Colonial link
Language proximity
Host country - specific factors
Host market size
Host market growth
Investment risk
Entry restriction
Competitive intensity
Firm - specific factors
Firm size
Multinational experience
Sign
Result
Significance
Yes
No
Yes
Yes
Yes
Yes
No
Yes
Yes
b
Partially
a
Partially
Yes
No
No
No
No
No
Yes
Yes
Yes
No
b
Partially
b
Partially
b
Partially
Yes
Yes
No
Yes
No
No
No
No
Yes
Yes
Partially
a
Partially
No
Yes
b
Partially
Yes
Yes
Yes
Yes
Yes
Yes
Support
a
a
Partially : Insignificant, but sign is consistent with hypothesis
b
Partially : Significant, but sign is inverse to hypothesis
The Beta value for the term “Home market size” is negative and significant,
indicating that when the home construction market size is large, contractors tend to use
mobile entry modes to penetrate overseas markets, supporting Hypothesis 1. The Beta
value for the term “Home market growth” is positive and significant, indicating that when
the home construction market grows rapidly, contractors will more probably use
permanent entry modes for overseas markets. Though this factor is found significant, the
direction is inverse to what is hypothesized (H2). This is partially because market growth
was measured with the average of annual growths of construction spending from 1992
through 2001, so the accumulative impacts of market growth have already been partially
counted in Home market size. On the other hand, in many countries with high domestic
market growth, governments promote contractors to pursue overseas markets and to
achieve sustainable foreign revenue income, like China and South Korea (Committee on
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Foreign Affairs 1985). Under such situations, despite growing domestic markets,
contractors try to establish permanent residence in overseas markets. Although the home
government support is believed to be an important variable in determining foreign market
entry mode decision, this study did not incorporate it in the model due to a lack of data
sources.
The Beta value for the term “Uncertainty avoidance” is positive and significant,
indicating that contractors from countries characterizing a preference to rules and norms
tend to use permanent entry modes to penetrate overseas markets, supporting Hypothesis
3. The Beta value for the term “Long term” is positive, indicating that contractors from
countries culturally characterizing long term orientation are more likely to use permanent
entry modes than mobile entry modes to penetrate overseas market. However it is not
statistically significant, partially supporting Hypothesis 4.
The Beta values for the four Home–Host market specific factors (cultural
distance, trade link, colonial link, and language proximity) have directions inverse to
what have been hypothesized based on various theories, though only three of them are
statistically significant. This indicates that when contractors enter an unfamiliar,
unknown, and psychologically remote market, they are more likely to use permanent
entry modes. There are at least two reasons that may contribute to this seemingly striking
phenomenon:
1) International contractors take an aggressive attitude toward unfamiliar business
environments. To international contractors, permanent entry modes are a way to help
them develop new capabilities. In an unfamiliar environment, contractors set up
localized residence to get local status, accumulate local knowledge and establish
enduring local networks, and develop other capabilities specifically for local
operations.
2) International contractors conventionally tend to use mobile entry modes. When the
environment is comfortable they would choose mobile entry modes with which they
are more familiar.
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This confirms that some general business theories may not hold true for the construction
industry, and some mental and behavioral patterns unique to international contractors
must be taken into consideration in explaining their selection of entry modes for
international construction markets.
The three Host market specific factors (investment risk, host market size, and host
market growth) were found statistically insignificant in Model 1. The result shows that
contractors do not tend to determine entry mode based on investment risk, size, and
growth of the host market when they select between permanent entry and mobile entry.
Although investment risk is not significant regarding its main effect, it does play a role in
selecting between permanent entry and mobile entry under different entry restriction.
This can be explained in the analysis of interaction effects of Investment risk by entry
restriction reported in the next section. Although permanent entry modes can lead to more
projects in exploiting an overseas market and therefore more return, they also involve
higher cost. The cost adjusted return may not justify the use of permanent entry.
Nevertheless, the Beta signs for host market size and host market growth are the same as
hypothesized, and this implies that permanent entry modes are moderately superior to
mobile entry modes in exploiting an attractive market.
Entry restriction is a significant term with a negative Beta value, indicating that
when the host market involves strong restrictive laws, policies, and practices, contractors
are more likely to use mobile entry modes than permanent entry modes. This is consistent
with Hypothesis 12. Entry restriction also interacts with other predictors in influencing
contractors’ selection of entry modes, and the details of these interaction effects will be
presented in the next section.
It was unexpected to find that contractors, when entering a market with intense
competition, tend to use permanent entry modes instead of mobile entry modes. Though
its direction is opposite to what was hypothesized in Hypothesis 13, this term is
statistically significant in the model. There are possibly three reasons for this striking
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phenomenon: 1) the measure used for competitive intensity in this study, the number of
competitors, may not be appropriate. It is in fact another proxy of host market
attractiveness, because more attractive markets have more contractors competing in it; 2)
International contractors are aggressive and not afraid of competition which reflects the
market situation in the concurrent “interpenetration” trend: firms who globalized during
the Middle East oil boom have to compete against each other in a suddenly narrowed
down but still very potential global market; and 3) In overseas markets, some contractors
do not compete directly with other international contractors or local contractors, but look
at some niche markets where they have competitive advantages. For example, Japanese
contractors are good at tunneling, UK contractors are good at bridge building, and USA
firms are good at petroleum process projects. Therefore, the competitive intensity in
specific market segments is the concern of the international contractor, not the overall
competitive intensity. Additional research is needed to further understand this
relationship.
The Beta value for the term firm size is significant and positive. This means that
contractors with a larger size are more likely to use permanent entry modes than
contractual entry modes, supporting Hypothesis 14. Firm experience is a significant term
with positive Beta value, indicating that when contractors have accumulated a lot of
experience, they tend to use permanent entry modes to enter foreign markets. Hypothesis
15 is therefore supported. The two hypotheses developed based on the firm specific
factors are therefore fully supported by the regression analysis.
The control variable, home country economic growth level is found statistically
significant in the model. It means that the economy growth stage of the home country
does play an important role in determining which entry modes are chosen by contractors.
This factor is not a focus of this research, but further exploration is interesting and
valuable.
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8.3.1.2 Interaction Effects
This research assumes a two stage decision process for contractors to decide on
their entry mode: a contractor first ranks entry modes based on the impacts of
independent variables except entry barrier, and then with consideration of entry barrier,
the most favorable and feasible entry mode is selected. The influences of entry barrier
upon the joint effects of all independent variables can be individually addressed with the
study of the interaction of entry barrier and each of the other independent variables.
Including a product term, according to Friedrich (1982), is a "low-risk strategy" in that if
the product term is significant the modeler keeps it in the model, otherwise one can drop
the product term out of the model.
Interaction effects between entry restriction and other predictors were explored in
Model 2 (see Table 8.5). The three interaction terms that are statistically significant
below 0.05 level are analyzed, including: 1) Entry restriction by home market growth; 2)
Entry restriction by cultural distance; and 3) Entry barrier by investment risk.
Figure 8.2 shows the interaction effects of entry restriction by home market
growth. As can be seen, when home market growth is below a certain even point,
contractors are less likely to use permanent entry modes in markets with stronger entry
restriction, which is consistent with what was hypothesized (Hypothesis 1). However, for
contractors from countries with market growth above this even point, they are more likely
to use permanent entry modes in markets with strong entry restriction. This seems
striking. If the previous explanation about the main effects of home market growth is
correct, that is, home market growth is in fact a proximity of home government support,
this phenomenon could be explained. For contractors from countries with little home
government support, like American contractors, they tend to use contractual entry modes
for markets that feature strong entry restriction. For those who have strong government
support or export promotion, like Chinese and Korean contractors, they may use
permanent entry modes to sustain overseas revenue. However most of these contractors
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are new players in the global construction arena and a global deployment of residence has
not been achieved yet. They usually have their permanent markets in adjacent countries
or third world countries where entry restriction can be high. The differences in slope of
the lines in Figure 8.2 also indicate that contractors have more consistent decisions
regarding which entry mode to use for markets with less entry restriction, while more
Odds ratio
variable decisions for markets with stronger entry restriction.
2
1.8
1.6
1.4
1.2
1
0.8
0.6
0.4
0.2
0
Low
Medium
High
M-S
M+S
Home market growth
Figure 8.2: Interaction Effects: Entry Restriction by Home Market Growth
Figure 8.3 shows the interaction effects of entry restriction by cultural distance.
As can be seen, when cultural distance is below a certain even point, contractors are less
likely to use permanent entry modes in markets with stronger entry restriction, which is
consistent with what was hypothesized (Hypothesis 4). However, when Cultural distance
is above this even point, they are more likely to use permanent entry modes in markets
with stronger entry restriction. This indicates that when cultural distance is low enough, it
is easy for contractors to understand the host market environment, and they do not need
to use permanent entry modes to facilitate the learning process. Therefore they can
choose between permanent entry and mobile entry according to entry restriction
magnitude: when entry restriction is high, they use mobile entry; otherwise, they use
permanent entry. However, when the cultural distance is high enough, permanent entry
becomes more necessary to get acquainted with and adapt to local market and
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contractors, therefore using permanent entry modes. Figure 8.3 also shows that the line
for low Entry restriction is nearly flat while the line for high entry restriction is
significantly sloped. This implies that international contractors emphasize the influence
of cultural distance upon the selection between permanent entry and mobile entry
regarding closed markets, but not regarding open markets.
1.6
1.4
Odds ratio
1.2
Low
Medium
High
1
0.8
0.6
0.4
0.2
0
M-S
M+S
Cultural distance
Figure 8.3: Interaction Effects: Entry Restriction by Cultural Distance
Figure 8.4 shows the interaction effects of entry restriction by investment risk. As
can be seen, when Investment risk rating is below a certain even point, contractors are
less likely to use permanent entry modes in markets with stronger entry restriction, which
is consistent with what was hypothesized (Hypothesis 9). However, when Investment risk
rating is above this even point, they are more likely to use permanent entry modes in
markets with stronger entry restriction. It should be noted that the higher the investment
risk rating, the less risky it is in that market. In risky and closed markets, contractors are
more likely to use permanent entry modes. One reason could be that with permanent
entry modes, entrants can enjoy the stable investment environment while having an entry
barrier against potential entrants. Regarding an open and stable market, contractors may
prefer mobile entry modes that they are accustomed to.
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1.6
1.4
Odds ratio
1.2
Low
Medium
High
1
0.8
0.6
0.4
0.2
0
M-S
M+S
Investment risk
Figure 8.4: Interaction Effects: Entry Restriction by Investment Risk
It is interesting to note from this analysis that although the main effect of entry
restriction is against permanent entry modes, it can in fact encourage the use of
permanent entry modes under certain conditions.
8.3.2 T Test
The binary logistic regression model developed (the model discussed in this
section is Model 2 if not specifically indicated otherwise) is a descriptive model, because
it predicts entry modes based on the historical data about leading international
contractors’ decisions. However, it is uncertain that if contractors select their entry modes
as this model suggests, they can achieve better entry performance. In other words, it is
unclear whether this is a “normative” model. The challenges to test whether this model is
also a normative model include:
1) It is difficult to measure the performance of market entry. Many financial or
non-financial indicators are dependent not only upon the entry mode
selection, but also upon other actions and decision of entrants like those
centering on marketing;
2) It is difficult to adjust for some inherently different effects between
permanent entry and mobile entry. For example, permanent entry modes
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normally involve high business continuity and therefore revenue, no matter
whether they are the optimal choices regarding a specific market (see Chapter
4).
3) Very few firms reported their entry performance regarding specific markets.
This research suggests using international revenue as an indicator of market entry
performance. The underlying assumption is that if an international contractor keeps using
the right method to decide which entry modes to use for its overseas markets, in the long
run it will achieve healthy global expansion and increasing international revenue. One
may argue that it is profit rather than revenue that constitutes a more valid indicator of
international business success. The rationale of this study is that “revenue only” based
expansion is not sustainable and if the average of international revenue of leading
contractors is used as the measure, it should be consistent with profit in most cases.
As mentioned above, permanent entry modes involve higher business continuity
than mobile entry modes. Therefore, when a contractor tends to use permanent entry
modes regardless of the decision environment, will it enjoy larger “averaged”
international revenue? This research uses a one way t-test to explore this question. The
null and alternative hypotheses are as follows:
H0: Contractors using permanent entry modes obtain the same
international revenue as those using mobile entry modes.
H1: Contractors using permanent entry modes obtain more international
revenue than those using mobile entry modes.
With the assumption of equal variance, the p value is 0.148 > 0.05. We therefore
cannot reject H0 or we can conclude that there is insufficient evidence to claim that
contractors using permanent entry modes can obtain more international revenue than
those using contractual entry modes. The result implies that if contractors keep using
permanent entry modes for international markets regardless of their internal and external
environment, they cannot sustain their growth in terms of international revenue.
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To test whether the regression model developed is normative, the following
hypotheses were developed:
H0: Contractors who select entry modes as the model suggests achieve the
same amount of international revenue as those who do not.
H1: Contractors who select entry modes as the model suggests achieve
more international revenue than those who do not.
The result from Model 2 was used to calculate the values of Fit. With equal
variance assumed, the p value is 0.00 < 0.05. We therefore reject H0 and conclude that
contractors who select entry modes as the model suggests can do better than those who
do not.
This analysis, though at a risk of inadequate measurement of entry performance,
demonstrates that the regression model developed in this research is not just a descriptive
model (under what scenarios do the contractors select which entry modes), but also a
normative one (if contractors’ selection is consistent with the model suggestion, they can
achieve better performance).
8.4 Conclusions and Managerial / Future Research Implications
Theoretical reasoning in Chapter 7 and the performance based empirical testing
contained in this chapter both confirm that no generic entry mode between permanent
entry and mobile entry consistently outperforms the other. Which one is relatively better
depends on multiple internal and external factors. One contribution of this study was to
successfully develop two contingency statistical models that combine the effects of these
factors in entry mode selection. Although this model can only distinguish between two
groups of entry modes - mobile entry and permanent entry, it provides a starting point to
develop selection frameworks for basic entry modes on a lower level. The regression
models are significant and the goodness-of-fit tests show the models fit data well. The
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t-test shows that the models are not just descriptive in the sense that it correctly depicts
the real selection approaches of leading international contractors, but also normative in
the sense that if contractors keep using entry modes as the model proposes, better global
operation performance as measured by international revenue can be achieved.
Most of the factors identified in this research were found to be significant either
by their main effects (home market size, home market growth, uncertainty avoidance,
cultural distance, colonial link, language proximity, entry restriction, competitive
intensity, firm size, and multinational experience) or interaction effects (investment risk
and host market size). However, not all the hypotheses were fully supported. In fact, in
some cases, the directions of impacts of the factors upon the dependent variable were
found to be opposite to related hypotheses. The analysis confirmed that some hypotheses
developed mainly based on general business and economic theories may not hold true for
the construction industry. Characteristics of the construction industry and especially the
unique behavior and decision patterns of the international contractors must be taken into
consideration to explain their selection of market entry modes.
International contractors appear to be adventurous risk-takers and aggressive
competitors. They traditionally prefer mobile entry modes, but will use permanent entry
modes to gain local knowledge and establish local networks to surmount the unknowns
and uncertainties in overseas markets that are quite different from their home countries.
Since the models developed are also normative, this implies that these unique
characteristics may explain the success of the sampled international contractors. In other
words, international contractors should not try to avoid risk-taking, competition, and
unfamiliar operational environments. Some capabilities can only be learned with
permanent residence in overseas markets. Contractors cannot wait to develop all
necessary in-house capabilities prior to using permanent entry modes to penetrate
selected overseas markets. International expansion is a process not only for using their
existing capabilities, but also to develop new capabilities. In this sense, the essence of
organizational capability theory may be applicable in explaining international
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contractors’ entry mode choices so as to compensate for some deficiencies of the OLI
paradigm used in Chapter 7. However, the OC theory must be operationalized in a
different way from previous research on international entry mode selection.
Because of some strong driving forces like home government promotion,
globalization, and pressure to offset tight home markets, it appears that some
international contractors may blindly and rashly use permanent entry modes even though
this may involve more difficulty than they could face if they chose mobile entry. The
difficulty is further amplified because these contractors are often inexperienced
international contractors and they usually focus on a small fraction of the global market.
These contractors are suggested to make more rational entry mode selection decisions
based on the findings of this research (the models and affiliated hypotheses) and try to
deploy their new market entries with a global perspective rather than a regional
perspective. This point, again, confirms that entry mode selection and market selection
are interrelated decisions.
8.5 Summary
This chapter measured the factors identified in Chapter 7, tested the hypotheses
centering on the factors with empirical data, and developed two regression models for the
selection between permanent entry and mobile entry. Testing results were interpreted and
analyzed regarding the main effects. Interaction effects were also explored and found
valuable to be incorporated in the model. Based on the testing and exploring results,
implications for management and future research were discussed.
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CHAPTER 9
CONCLUSIONS
The international construction industry keeps growing and many construction
companies are continuously seeking new geographic markets to enter. Once they have
identified a potential market, they are challenged with the decision on how to enter the
market. This research focused on the market entry decision made by contractors that are
expanding into a new country market. This decision can have a significant effect on the
profitability of the company in the new market and will drive the more detailed project
evaluation decision related to whether a company will pursue individual projects in the
market.
There have been very limited studies in the construction industry focused on
market entry. This research has shown that the construction industry differs from other
industries when considering the market entry decision. Therefore, a taxonomy of entry
modes specific to international construction markets was defined and a market entry
mode selection model was developed to analyze how contractors enter new markets to
achieve sustainable business growth.
9.1 A Summary of the Research Process and Findings
This research aimed to answer “How do construction firms enter individual
foreign markets?” and “How does this entry behavior vary across different types of firms
and different entry situations in the construction sector?”. The answers to these and other
related questions in the area of international construction are not well defined. The
existing knowledge of entry modes in firms has been accumulated mostly in the context
of the manufacturing industry. The construction industry has distinct characteristics
which make the wholesale transfer of concepts and theories serving the manufacturing
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industry unrealistic. Therefore entry modes for international construction markets were
defined, and the factors that influence the selection of entry modes were identified and
evaluated.
This research characterized the global construction market trends from a
geographic market entry perspective, developed a taxonomy of entry modes for
international construction markets, differentiated these entry modes, identified internal
and external factors influencing entry mode selection, and developed a descriptive and
normative model for entry mode selection.
9.1.1 Characterization of the Global Construction Market Trends from a Market
Entry Perspective
The globalization process of the construction industry was reviewed with an
emphasis on the past two decades. It was found that market entry activities have become
very frequent since the oil boom and throughout the “interpenetration” era when
contractors from developed countries penetrated each other’s home markets. The method
of localized “permanent entry” has become more and more important for international
contractors when pursuing overseas work in comparison with the traditionally dominant
“mobile entry” method. Strategic decisions about international construction market entry
were therefore found important to investigate in this study, with a focus on the selection
between permanent market entry and mobile market entry.
9.1.2 Development of a Taxonomy of Entry Modes for the Global Construction
Market
Ten basic entry modes were identified and defined through an analysis of
literature and cases studies, regarding their structure; formation process; primary setting
characteristics and possible variations; merits and demerits; transferability; and
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compatibility. These basic entry modes include 1) strategic alliance, 2) local agent, 3)
licensing, 4) joint venture company, 5) sole venture company, 6) branch office /
company, 7) representative office, 8) joint venture project, 9) sole venture project, and
10) BOT / equity project (see Table 9.1). They were compiled into a unified structure
based on their similarities and differences. The taxonomy was further validated by a
survey of experienced practitioners in international construction.
Table 9.1: Definitions of Entry Modes for International Construction Markets
Entry mode
Strategic Alliance
Local Agent
Licensing
Joint Venture Company
Sole Venture Company
Branch Office/Company
Representative Office
Joint Venture Project
Sole Venture Project
BOT/Equity Project
Definition
A long-term inter-corporate association without an affiliated organization based on
trust and a mutual respect for each participant’s business needs, used to further the
common interests of the members (including the entrant).
A contractual arrangement between the entrant (principle) and a local agent where
the agent provides principle information on local market conditions, contacts, and
assistance to the entrant.
A contractual arrangement between parties in different countries on the licensee’s
use of limited rights or resources like patents, trademarks, trade names, technology,
and managerial skills from the entrant (licensor).
A permanent joint venture in which the entrant and other legally separate parties form
a jointly owned entity in which they invest and engage in various decision-making
activities.
A permanent venture in the host country wholly owned by the entrant where profits
and responsibilities are assigned exclusively to the entrant.
A form of presence without a legal person status of the entrant in the host country
that can carry out either profit-making or non profit-making business activities.
An unincorporated formal presence in the host country to carry out non-commercial
activities like business communications, product promotion, market research, contract
administration, and negotiations on behalf of the entrant's head office.
A project specific joint venture in which profits and other responsibilities are assigned
to the entrant and other parties according to a contract.
A wholly owned project specific venture where both profits and responsibilities are
assigned exclusively to the entrant.
A project delivery method where the entrant (sponsor) finances, builds, and operates
an economic infrastructure in the host country, and then transfers the ownership back
to the government at the end of the project term free of charge or at an agreed price.
9.1.3 Differentiation of Entry Modes
The basic entry modes differ in setting characteristics (e.g., cooperative versus
competitive, hierarchical levels, contractual versus investment and ownership) and
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strategic effects (return, control, risk exposure, resource commitment, and flexibility).
However, there is no single dimension that can differentiate all basic entry modes. The
dichotomy of permanent entry versus mobile entry was transformed into a binary
selection between two groups of basic entry modes: permanent entry modes and mobile
entry modes. Mobile entry modes include joint venture project, sole venture project, and
BOT / equity project; permanent entry modes include joint venture company, sole
venture company, branch office / company, and representative office. In general,
permanent entry modes involve more resources and investment risk, but are less flexible
than mobile entry modes.
9.1.4 Identification of Factors Influencing Entry Mode Selection
Six schools of theories were used to identify factors that could influence the
selection between permanent entry and mobile entry and hypotheses were developed
centering on these factors. They are: 1) transaction cost economics, 2) stage model of
entry, 3) OLI paradigm, 4) organizational capability, 5) bargaining power, and 6)
institutional / cultural theory. Among them, transaction cost economics, organizational
capability, and stage model of entry were found to be of little value in distinguishing
between permanent entry and mobile entry. The factors identified included 1) home
market attractiveness, 2) long term orientation, 3) uncertainty avoidance, 4) cultural
distance, 5) trade link, 6) colonial link, 7) language proximity, 8) host market
attractiveness, 9) investment risk, 10) entry restriction, 11) competitive intensity, 12) firm
size, and 13) multinational experience. Hypotheses regarding the influences of these
factors upon the selection were developed based on applicable theories and previous
related findings.
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9.1.5 Hypothesis Testing and Model Development for Entry Mode Selection
Measures were proposed for the influencing factors, and quantitative and
qualitative data was collected regarding these measures. A binary logistic regression
analysis was applied to test the hypotheses (see Table 9.2) and develop a model (see
Table 8.5) that describes under what internal and external conditions, international
contractors tend to use which entry mode (permanent entry or mobile entry). With a
t-test, this statistic model was also found to be a normative one in the sense that when a
contractor keeps using the entry modes the model suggests, better performance can be
achieved. Some of the hypotheses were not supported. This suggests that the unique
characteristics of the international contractors and the global construction market must be
considered in addition to general business and economics theories. This further confirms
the uniqueness of international construction and that findings from other sectors like
manufacturing or other service industries may not be immediately applicable to the
construction sector.
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Table 9.2: Results of Hypothesis Testing
Hypotheses
H1
H2
H3
H4
H5
H6
H7
H8
H9
H10
H11
H12
H13
Entrants with an attractive home country market are less likely
to enter foreign market with permanent entry modes.
Entrants from countries with long term orientation are more
likely to use permanent entry modes.
Entrants from countries with high uncertainty avoidance are
more likely to use permanent entry modes.
If the host market and home country have a close trade link,
entrants are more likely to use permanent entry modes.
Entrants are more likely to use permanent entry modes to
penetrate countries with small cultural distance.
Entrants are more likely to use permanent entry modes for
markets with a colonial link with its home country.
Entrants arel more likely to use permanent entry modes for
markets with language proximity.
Entrants are more likely to use permanent entry modes for
attractive host markets.
Entrants are more likely to use permanent entry modes for
markets with less country risk.
Entrants are more likely to use permanent entry modes for
markets with less entry restriction.
Entrants are more likely to use permanent entry modes for
markets with less competitive intensity.
Entrants of larger firm size are more likely to use permanent
entry modes for foreign markets.
Entrants of more international experience are more likely to
use permanent entry modes for foreign markets.
Testing result
Yes, when market attractiveness is
meansured by market size
Yes
Partially
Partially
No
Partially
Partially
Partially
No
Yes
Partially
Yes
Yes
9.2 Contributions of the Research
Based on theoretical reasoning and empirical data analysis, this research
contributes to the international construction discipline in at least four aspects as discussed
in the following sections.
9.2.1 A Taxonomy of Entry Modes for International Construction Markets
The construction sector is unique in the sense that entry modes used by
international contractors can be different from practitioners in other sectors like
manufacturing. For example, contractual entry modes are more commonly used and some
entry modes like BOT / equity project that are common in the construction sector are rare
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in other sectors. However the entry modes for international construction have only been
investigated in previous research on a piecemeal basis. An effort to identify and define
each entry mode, and then compile them into a holistic hierarchy has not been published.
One contribution of this research was to develop such a taxonomy of entry modes for
international construction markets. This taxonomy is not only new in the international
construction area, but differs fundamentally from those taxonomies proposed in the
general international business discipline. This taxonomy provides a systematic and
comprehensive tool for international construction firms to conceptualize their entry
related course of activities and identify alternative entry modes or combinations of
multiple entry modes to access their targeted overseas markets.
9.2.2 Influencing Factors for Entry Mode Selection in International Construction
The theories that were used in previous research to address entry mode selection
were re-examined to test their applicability in differentiating between permanent entry
and mobile entry. This study integrated three applicable schools of theories, while most
previous research in the general international business usually involve one or two
theories. The extensive theoretical review and reasoning upon it ensure the relative
comprehensiveness of the set of influencing factors to be included in the selection model.
9.2.3 A Descriptive and Normative Model for Entry Mode Selection in International
Construction
The statistical model developed in this research aids in predicting under what
scenarios contractors would select which type of generic entry mode (mobile versus
permanent). This model is also normative meaning that when contractors use the entry
mode suggested by the model, better performance can be achieved. This model can be
used by contractors to identify a potential entry mode and aid policy makers to form or
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reform their policies regarding international contractors’ involvement in the domestic
market.
9.2.4 Innovation in Research Methodology for Construction Management
This study used a hypothesis testing approach which is common in disciplines
such as international business and economics, but rare in construction management which
traditionally prefers an exploratory approach. Although the construction management
discipline is still young and lacks theories of itself, this research shows that hypothesis
testing is feasible by borrowing from other related disciplines.
9.3 Limitations of the Research
This research has several limitations as discussed in the following subsections.
9.3.1 Selection between Two Groups of Entry Modes
This research focused on the development of a selection model for two groups of
entry modes, or say, two generic entry modes: permanent entry and mobile entry. It did
not distinguish between entry modes within a group. It is a very complicated issue to
differentiate between all basic entry modes in the taxonomy developed in this research,
because each pair of entry modes may be distinct in different ways (e.g., strategic effects)
and therefore the selection is influenced by different sets of factors. However, this
limitation identifies many valuable opportunities for future research (see Section 9.4.2).
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9.3.2 Limited Factors Included in the Model
The selection model developed was statistically significant, and the prediction
result based on the model is better than 0.5. This, however, does not mean that all
influencing factors have been incorporated into this model. In fact, some potential
factors, especially those about a specific firm’s capabilities and strategic direction, can
significantly influence the entry mode selection decision. Due to data source constraints
within this research, not all potential variables could be taken into consideration. In
addition, all factors in the existing model come from theoretical reasoning, but as
previous research indicated, some factors that are not supported by any theory can also
play an important role in determining entry modes. Therefore, more factors could be
included in the model to make a more robust and accurate model.
9.3.3 Data Accessibility
Qualitative and quantitative data collected from multiple sources were utilized to
support this research. Most of the data was publicly available. However, some data that
can best measure certain variables in the model was not publicly available. In such cases,
less optimal data was used instead, or the variables could not be included in the model.
For example, international revenue was used to measure entry performance, although
profits regarding individual markets would be a better measure. These profit valueswere
seldom reported by international contractors including pubic firms (they report their
annual profit, but few breakdowns for individual markets). Some firm-specific variables,
as discussed in Section 9.3.2, could not be included in the model for empirical analysis
because of data access restriction.
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9.4 Future Research
As a pioneer study on entry strategies for international construction markets, this
study identified several topics that are worthy of future research.
9.4.1 Market Selection
Market selection is a critical topic in developing a comprehensive entry strategy.
This study did not address the market selection decision. Market selection among several
candidate countries can be transformed into an entry / no-entry decision regarding each
market in the set of options. In this sense, some previous studies in construction
management have addressed this topic, however a general framework has not been
established to date for this fundamental issue in international construction.
9.4.2 Selection between Basic Entry Modes
With a similar methodology used in this study to address the selection between
mobile entry and permanent entry, future research could differentiate basic entry modes
within each group, e.g., between a sole venture company and a joint venture company, or
between a sole venture project and a joint venture project. Different theories can be
investigated. For example, transaction cost economics that was believed to be of limited
use in selecting between permanent entry versus mobile entry may be applicable in
differentiating between sole venture and joint venture entries. Accordingly, the
operationalization can be very different and so would the selection model.
205
9.4.3 Principles for Combining and Sequencing Different Entry Modes
In practice, contractors need to decide not only which entry mode to use, but also
how to combine and / or sequence different entry modes to enter and grow within an
overseas market. A combination of different entry modes can avoid the shortcomings of
an individual entry mode and integrate merits of multiple entry modes to optimize entry
performance. Sequencing of different entry modes can meet the changing internal and
external environments to achieve better performance than a single entry mode. It can
therefore be very valuable to identify and evaluate the principles for combining and / or
sequencing different entry modes.
9.4.4 The Culture of International Contractors
The testing results of Hypotheses 5, 6, 7, 8, 9, and 11 indicate that international
contractors take an aggressive attitude toward foreign market entry. In an unfamiliar,
risky, and competitive business environment, international contractors are likely not to
use mobile entry modes that can help them avoid threats that their existing capabilities
may not meet well, but instead choose permanent entry modes to enhance existing
capabilities or develop new capabilities in order to achieve long term benefits. This
unique culture is interesting and well worthy of further investigation.
9.4.5 The Application of Organizational Capability in Entry Mode Selection
The organizational capability (OC) perspective emphasizes effectiveness of
capability transfer, exploitation, and development. Previous applications of OC in market
entry mode selection focused on the relationship between the need of capability transfer
and boundary configuration. This is why this theory was declared to be less useful in
distinguishing between permanent entry and mobile entry in the theory building stage of
this research. However, the empirical analysis in this study indicated that international
206
contractors take an aggressive attitude towards entry mode selection and tend to use
permanent entry mode to facilitate new capability development where their ownership
and location advantage may suggest the use of mobile entry. It would therefore be
valuable and interesting to investigate the applicability of OC in this field of research and
develop innovative methods to operationalize OC in the selection between permanent
entry and mobile entry for international construction markets.
9.5 Concluding Remarks
Despite their importance to industry practices, both strategic management in
construction and international construction are areas in the discipline of construction
management that have received limited attention from the research community. This is
particularly true for the study of entry strategies for international construction markets,
since it is a hybrid of the two areas. This results into a threat that this study must face that
there are many basic research questions which must be answered to establish a
comprehensive theoretical framework regarding international construction market entry.
These questions include why the market entry decision issue is important, what those
entry modes are, and how to select optimal entry modes based on specific scenarios.
This research started with a review of the globalization process of the construction
industry. Examined from a market entry perspective, opinions from industry practitioners
and activities of leading international construction firms show a significant trend about
market entry mode use: more innovative entry modes keep emerging and contractors face
a selection primarily between mobile entry and permanent entry, a dichotomy defined by
both setting characteristics and strategic effects (e.g., resource commitment). Case studies,
in collaboration with review of previous related findings about market entry modes on a
piecemeal basis, define a taxonomy of entry modes for international construction
markets. Although the comprehensiveness of the taxonomy was validated with a survey,
it is recognized that more innovative modes can emerge and then upgrade the taxonomy.
207
Theories and findings from other disciplines, primarily international business, were
borrowed and examined to evaluate their applicability in explaining international
contractors’ practices in entry mode selection. Analysis based on empirical data about
leading international contractors’ market entry practices showed that some previous
findings primarily from the manufacturing industry do not apply to the construction
industry and the unique culture and behavioral patterns of the international contractors
must be taken into consideration to explain their market entry mode selection. The
selection model was evaluated in association with entry performance and it was found
that if the entrant uses the entry mode suggested by the model, better performance can be
achieved.
This research is just one of the limited pioneer efforts about entry strategies for
international construction markets. Although it defined a taxonomy including ten basic
entry modes, the selection model only addresses the selection between two groups of
entry modes (i.e., permanent entry versus mobile entry). Further investigation is needed
to establish a more systematic and practical framework for international construction
market entry to help international contractors to improve their competence to be
successful in the competitive international construction arena. This research not only
provides fundamental findings to support future research, but also provides a feasible set
of research strategies that future investigators can adopt to advance this important field of
research.
208
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222
Appendix A
Cultural Index Scores for Countries (Hofstede 2001)
223
Country
Arab World
Argentina
Australia
Austria
Belgium
Brazil
Canada
Chile
China
Colombia
Costa Rica
Czech
Denmark
Russia & Romania
Ecuador
El Salvador
Finland
France
Germany
Greece
Guatemala
HK
Hungary
India
Indonesia
Iran
Ireland
Israel
Italy
Vietnam
Japan
Malaysia
Mexico
Netherlands
New Zealand
Norway
Pakistan
Panama
Peru
Philippines
Poland
Portugal
Singapore
South Africa
Korea, South
Spain
Sweden
Switzerland
Taiwan
Thailand
Turkey
UK
USA
Uruguay
Venezuela
West Africa
Mean
STDEV
Variance
Power
distance
80.0
49.0
36.0
11.0
65.0
69.0
39.0
63.0
80.0
67.0
35.0
57.0
18.0
62.5
78.0
66.0
33.0
68.0
35.0
60.0
95.0
68.0
46.0
77.0
78.0
58.0
28.0
13.0
50.0
89.0
54.0
104.0
81.0
38.0
22.0
31.0
55.0
95.0
64.0
94.0
68.0
63.0
74.0
49.0
60.0
57.0
31.0
34.0
58.0
64.0
66.0
35.0
40.0
61.0
81.0
77.0
57.7
21.7
472.5
Uncertainty
avoidance
68.0
86.0
51.0
70.0
94.0
76.0
48.0
86.0
40.0
80.0
86.0
74.0
23.0
83.5
67.0
94.0
59.0
86.0
65.0
112.0
101.0
29.0
82.0
40.0
48.0
59.0
35.0
81.0
75.0
48.3
92.0
36.0
82.0
53.0
49.0
50.0
70.0
86.0
87.0
44.0
93.0
104.0
8.0
49.0
85.0
86.0
29.0
58.0
69.0
64.0
85.0
35.0
46.0
100.0
76.0
54.0
66.7
23.2
537.9
Individualism Masculinity
38.0
46.0
90.0
55.0
75.0
38.0
80.0
23.0
20.0
13.0
15.0
58.0
74.0
59.0
8.0
19.0
63.0
71.0
67.0
35.0
6.0
25.0
55.0
48.0
14.0
41.0
70.0
54.0
76.0
37.5
46.0
26.0
30.0
80.0
79.0
69.0
14.0
11.0
16.0
32.0
60.0
27.0
20.0
65.0
18.0
51.0
71.0
68.0
17.0
20.0
37.0
89.0
91.0
36.0
12.0
20.0
44.3
25.0
626.4
52.0
56.0
61.0
79.0
54.0
49.0
52.0
28.0
66.0
64.0
21.0
57.0
16.0
60.5
63.0
40.0
26.0
43.0
66.0
57.0
37.0
57.0
88.0
56.0
46.0
43.0
68.0
47.0
70.0
43.8
95.0
50.0
69.0
14.0
58.0
8.0
50.0
44.0
42.0
64.0
64.0
31.0
48.0
63.0
39.0
42.0
5.0
70.0
45.0
34.0
45.0
66.0
62.0
38.0
73.0
46.0
50.6
18.3
334.0
Long-term
31.0
65.0
23.0
118.0
31.0
96.0
61.0
80.0
44.0
30.0
20.0
0.0
19.0
48.0
75.0
33.0
87.0
56.0
25.0
29.0
16.0
47.0
30.5
929.5
224
Appendix B
Investment Risk Ratings
225
Country
Syria
Turkey
UAE
Australia
Bangladesh
Brunei
Myanmar
China
HK
India
Indonesia
Japan
Kazakhstan
Korea, South
Korea, North
Kyrgyzstan
Malaysia
Nepal
New Zealand
Papua New Gu
Philippines
Singapore
Sri Lanka
Taiwan
Tajikistan
Thailand
Turkmenistan
Uzbekistan
Vietnam
Laos
Mongolia
Algeria
Egypt
Ethiopia
Libya
Morocco
Sudan
Tunisia
Angola
Benin
Botswana
Burkina Faso
Burundi
Cameroon
Congo
Gabon
Ghana
Guinea
Kenya
Liberia
Malawi
Mozambique
Nigeria
Senegal
Sierra Leone
South Africa
Swaziland
Tanzania
Uganda
Congo DR
Zambia
Zimbabwe
1992
20.3
43.7
56.8
66.7
17.2
1993
22.4
45.3
57.9
67.9
19.3
1994
23.1
45.6
59.9
68.9
20
1995
24.9
40.7
60.5
70.9
24.8
1996
24.6
40.4
60.8
71
26.5
1997
25
40.8
60.8
72.2
27.4
1998
24.7
37.8
61.4
73.7
27.2
1999
23
36.9
62.5
74.3
25
2000
23.2
39
62.4
78.3
25.5
2001
25
43.7
67.6
79
27.4
2002
22
33.1
66.5
83
26.2
13.8
54.4
65.8
37.6
50.6
91.4
13.3
58
66
40
51.7
91
17.7
69.5
6.5
16.4
57.6
67
44.2
51.9
91.9
18.7
68.4
5.7
12.4
56.3
65.6
38.6
51.1
91
15.8
68.6
7.3
18.9
56.4
65.4
45.8
51.8
91
19.2
72
6.5
21.3
58
64.9
46.3
51.6
91.3
20.9
71.4
5.8
21.7
57.6
62.9
46.5
49.9
90.8
26.4
64.4
5.1
18.7
57.2
61.8
44.5
27.9
85.5
27.9
52.7
7.8
62.6
22.6
61.8
32.1
25.7
78.5
23.4
76.9
63.9
21.7
63.8
32.4
27.1
80.3
25.5
78.5
66.6
23.2
66.1
32.8
30.5
81.4
27.7
79
68.6
24.4
68.2
32.4
35.4
83
32.4
79.7
68.4
23.9
70.3
33
38.1
82.8
32.5
78.9
67.5
25.2
71.7
32.5
42.3
83.9
33.2
77.1
64.5
25.5
73.4
33.2
43.3
82.9
33.6
75.5
51
24.4
73.1
30.4
43.3
81.3
33.3
75.5
62.8
60
61.1
63.5
63.4
61.1
52.3
46.9
16.8
14.5
17.5
14.3
21.9
14.4
27.6
14.9
30.3
17.1
32.5
19.6
32.7
18.3
27.8
16.9
56.6
60.8
45.3
28.3
86.9
30.2
58.8
6.8
17.6
54.9
26.8
75.5
30.9
45.7
80.4
35.4
76.2
12.9
48.8
17.1
18
29.1
16.4
58.6
67
47.7
25.1
87.2
32.4
62.4
10.8
18
58.9
26.9
76.9
28
43.1
85.8
34.6
76.1
12.3
50.2
18
19.2
28.5
33.1
24.9
7
28.9
29.7
5.6
38.7
14
28.2
27.1
8.5
28.6
32.2
7
38.8
13.7
35.4
41.1
26.3
29.8
10.6
29.4
35.8
6.1
42.9
10.7
16.8
45.7
17.2
23.5
32.9
13.5
30.5
39
6.1
43.3
10.9
15.1
48.5
21.5
34
14.7
29.9
38.7
6.6
44.8
12.5
15.5
49.5
16.4
23.2
36.7
16
28.7
39.7
10.4
46.3
12.5
16
49.5
17.7
25.1
41.3
17.5
28.3
41.5
7.6
48
12.5
17.3
51.9
20.1
25.2
44.4
16.2
28.1
43.2
7.6
50.3
11.5
16.3
53.5
18.8
21.9
13.7
26.4
21.9
15.2
28
24.2
24.7
6
16.2
8.4
20.3
20
6.7
39.8
22.2
12.9
7.3
19
14.8
25.8
29.2
13.8
24.9
6.2
18.8
12.6
17.5
21.6
8.1
42.5
28.5
15.5
12.8
18.5
14.2
25.1
29.2
13.7
26.9
6.9
19.8
13.1
14.8
21.5
7.8
46.3
30
17.7
14.5
18.1
14
24.1
30.6
13.8
27.9
6.9
19.8
14.9
14.8
19.8
6.6
46
31.8
18.1
17.7
18.5
6.8
24.7
31.4
16.4
26.7
7
20.1
16.1
15.2
21.6
5.7
46.5
33.1
19.3
21.2
18.1
6.1
23.2
29.5
15.4
24.1
7.6
20.4
17.9
16.8
21.7
6.3
45.8
28.5
18.3
20.3
31.6
47.5
15.2
31.4
44.3
10.1
51.9
12.6
17
52.4
18.4
12
16.2
25.9
7
16.7
7.4
21.2
17.8
6.7
39.3
19.7
12.5
5.5
19.7
15.5
27.4
27.1
13.1
22.8
6
17.4
10.3
18.6
20.9
7.2
38.9
26.3
13.9
10.1
9.8
28.3
11.7
27.7
13.1
27.9
14.6
30.7
15.7
32.2
16.1
32.3
17.5
33.6
16.1
26.5
27.7
45.4
15.9
31.6
45.6
7.9
49.7
12.6
17.3
57
19.2
9.6
18
7.1
22.2
31
14.4
26.6
8.4
19.5
19.2
18.3
23.2
7.1
45.2
29.7
19.1
22.9
8
15.1
24.1
13.3
57.6
66.5
48
21.6
85.9
35
62.7
8.8
16.8
55.3
23.9
78.4
27.8
42.4
84.8
31.7
73
12.6
48.2
16.3
17
29.3
14.9
20.8
30.9
45.9
14.3
32.3
43.7
9
51
12.7
17.8
56.6
17.7
10.8
17.1
9.1
21.5
24.6
15.2
20.8
8
18.2
19
17.8
25.1
8.3
49.9
28.7
20.5
21.2
8.4
15.1
11.3
Notice:
Source_The Institutional Investor (March issue of each year (Pan Tse, 2000);
22.4
27.2
14.9
24.4
11
19.1
18.7
18
23.2
8.8
50.6
28.6
20.1
22.3
10.2
16.1
16.2
226
Country
Syria
Turkey
UAE
Australia
Bangladesh
Brunei
Myanmar
China
HK
India
Indonesia
Japan
Kazakhstan
Korea, South
Korea, North
Kyrgyzstan
Malaysia
Nepal
New Zealand
Papua New Gu
Philippines
Singapore
Sri Lanka
Taiwan
Tajikistan
Thailand
Turkmenistan
Uzbekistan
Vietnam
Laos
Mongolia
Algeria
Egypt
Ethiopia
Libya
Morocco
Sudan
Tunisia
Angola
Benin
Botswana
Burkina Faso
Burundi
Cameroon
Congo
Gabon
Ghana
Guinea
Kenya
Liberia
Malawi
Mozambique
Nigeria
Senegal
Sierra Leone
South Africa
Swaziland
Tanzania
Uganda
Congo DR
Zambia
Zimbabwe
1992
20.3
43.7
56.8
66.7
17.2
1993
22.4
45.3
57.9
67.9
19.3
1994
23.1
45.6
59.9
68.9
20
1995
24.9
40.7
60.5
70.9
24.8
1996
24.6
40.4
60.8
71
26.5
1997
25
40.8
60.8
72.2
27.4
1998
24.7
37.8
61.4
73.7
27.2
1999
23
36.9
62.5
74.3
25
2000
23.2
39
62.4
78.3
25.5
2001
25
43.7
67.6
79
27.4
2002
22
33.1
66.5
83
26.2
13.8
54.4
65.8
37.6
50.6
91.4
13.3
58
66
40
51.7
91
17.7
69.5
6.5
16.4
57.6
67
44.2
51.9
91.9
18.7
68.4
5.7
12.4
56.3
65.6
38.6
51.1
91
15.8
68.6
7.3
18.9
56.4
65.4
45.8
51.8
91
19.2
72
6.5
21.3
58
64.9
46.3
51.6
91.3
20.9
71.4
5.8
21.7
57.6
62.9
46.5
49.9
90.8
26.4
64.4
5.1
18.7
57.2
61.8
44.5
27.9
85.5
27.9
52.7
7.8
62.6
22.6
61.8
32.1
25.7
78.5
23.4
76.9
63.9
21.7
63.8
32.4
27.1
80.3
25.5
78.5
66.6
23.2
66.1
32.8
30.5
81.4
27.7
79
68.6
24.4
68.2
32.4
35.4
83
32.4
79.7
68.4
23.9
70.3
33
38.1
82.8
32.5
78.9
67.5
25.2
71.7
32.5
42.3
83.9
33.2
77.1
64.5
25.5
73.4
33.2
43.3
82.9
33.6
75.5
51
24.4
73.1
30.4
43.3
81.3
33.3
75.5
62.8
60
61.1
63.5
63.4
61.1
52.3
46.9
16.8
14.5
17.5
14.3
21.9
14.4
27.6
14.9
30.3
17.1
32.5
19.6
32.7
18.3
27.8
16.9
56.6
60.8
45.3
28.3
86.9
30.2
58.8
6.8
17.6
54.9
26.8
75.5
30.9
45.7
80.4
35.4
76.2
12.9
48.8
17.1
18
29.1
16.4
58.6
67
47.7
25.1
87.2
32.4
62.4
10.8
18
58.9
26.9
76.9
28
43.1
85.8
34.6
76.1
12.3
50.2
18
19.2
28.5
33.1
24.9
7
28.9
29.7
5.6
38.7
14
28.2
27.1
8.5
28.6
32.2
7
38.8
13.7
35.4
41.1
26.3
29.8
10.6
29.4
35.8
6.1
42.9
10.7
16.8
45.7
17.2
23.5
32.9
13.5
30.5
39
6.1
43.3
10.9
15.1
48.5
21.5
34
14.7
29.9
38.7
6.6
44.8
12.5
15.5
49.5
16.4
23.2
36.7
16
28.7
39.7
10.4
46.3
12.5
16
49.5
17.7
25.1
41.3
17.5
28.3
41.5
7.6
48
12.5
17.3
51.9
20.1
25.2
44.4
16.2
28.1
43.2
7.6
50.3
11.5
16.3
53.5
18.8
21.9
13.7
26.4
21.9
15.2
28
24.2
24.7
6
16.2
8.4
20.3
20
6.7
39.8
22.2
12.9
7.3
19
14.8
25.8
29.2
13.8
24.9
6.2
18.8
12.6
17.5
21.6
8.1
42.5
28.5
15.5
12.8
18.5
14.2
25.1
29.2
13.7
26.9
6.9
19.8
13.1
14.8
21.5
7.8
46.3
30
17.7
14.5
18.1
14
24.1
30.6
13.8
27.9
6.9
19.8
14.9
14.8
19.8
6.6
46
31.8
18.1
17.7
18.5
6.8
24.7
31.4
16.4
26.7
7
20.1
16.1
15.2
21.6
5.7
46.5
33.1
19.3
21.2
18.1
6.1
23.2
29.5
15.4
24.1
7.6
20.4
17.9
16.8
21.7
6.3
45.8
28.5
18.3
20.3
31.6
47.5
15.2
31.4
44.3
10.1
51.9
12.6
17
52.4
18.4
12
16.2
25.9
7
16.7
7.4
21.2
17.8
6.7
39.3
19.7
12.5
5.5
19.7
15.5
27.4
27.1
13.1
22.8
6
17.4
10.3
18.6
20.9
7.2
38.9
26.3
13.9
10.1
9.8
28.3
11.7
27.7
13.1
27.9
14.6
30.7
15.7
32.2
16.1
32.3
17.5
33.6
16.1
26.5
27.7
45.4
15.9
31.6
45.6
7.9
49.7
12.6
17.3
57
19.2
9.6
18
7.1
22.2
31
14.4
26.6
8.4
19.5
19.2
18.3
23.2
7.1
45.2
29.7
19.1
22.9
8
15.1
24.1
13.3
57.6
66.5
48
21.6
85.9
35
62.7
8.8
16.8
55.3
23.9
78.4
27.8
42.4
84.8
31.7
73
12.6
48.2
16.3
17
29.3
14.9
20.8
30.9
45.9
14.3
32.3
43.7
9
51
12.7
17.8
56.6
17.7
10.8
17.1
9.1
21.5
24.6
15.2
20.8
8
18.2
19
17.8
25.1
8.3
49.9
28.7
20.5
21.2
8.4
15.1
11.3
Notice:
Source_The Institutional Investor (March issue of each year (Pan Tse, 2000);
Only for countries Insititutional Investor investigated.
22.4
27.2
14.9
24.4
11
19.1
18.7
18
23.2
8.8
50.6
28.6
20.1
22.3
10.2
16.1
16.2
227
Appendix C
Lingual, Colonial, and Distance Relationships between Countries
(50 out of 50176 items are shown)
228
Country
ARUBA
ARUBA
ARUBA
ARUBA
ARUBA
ARUBA
ARUBA
ARUBA
ARUBA
ARUBA
ARUBA
ARUBA
ARUBA
ARUBA
ARUBA
ARUBA
ARUBA
ARUBA
ARUBA
ARUBA
ARUBA
ARUBA
ARUBA
ARUBA
ARUBA
ARUBA
ARUBA
ARUBA
ARUBA
ARUBA
ARUBA
ARUBA
ARUBA
ARUBA
ARUBA
ARUBA
ARUBA
ARUBA
ARUBA
ARUBA
ARUBA
ARUBA
ARUBA
ARUBA
ARUBA
ARUBA
ARUBA
ARUBA
ARUBA
ARUBA
Country
comlang_off colony
distw
ARUBA
0
0 25.09
AFGHANISTAN
0
0 13168
ANGOLA
0
0 9587
ANGUILLA
0
0 976.9
ALBANIA
0
0 9092
ANDORRA
1
0 7570
NETHERLANDS ANTILLES
1
0 239.9
UAE
0
0 12773
ARGENTINA
1
0 5188
ARMENIA
0
0 11107
ANTIGUA AND BARBUDA
0
0 1011
AUSTRALIA
0
0 15670
AUSTRIA
0
0 8633
AZERBAIJAN
0
0 11422
BURUNDI
0
0 11139
BELGIUM
1
0 7843
BENIN
0
0 7916
BURKINA FASO
0
0 7349
BANGLADESH
0
0 15486
BULGARIA
0
0 9471
BAHRAIN
0
0 12297
BAHAMAS
0
0 1635
BOSNIA AND HERZEGOVINA
0
0 8888
BELARUS
0
0 9418
BELIZE
1
0 2062
BERMUDA
0
0 2275
BOLIVIA
1
0 3367
BRAZIL
0
0 4432
BARBADOS
0
0 1128
BRUNEI
0
0 18043
BHUTAN
0
0 15106
BOTSWANA
0
0 11179
CENTRAL AFRICAN REPUBLIC
0
0 9729
CANADA
0
0 4316
COCOS (KEELING) ISLANDS
0
0.
SWITZERLAND
0
0 8074
CHILE
1
0 5094
CHINA
0
0 14591
COTE D'IVOIRE
0
0 7194
CAMEROON
0
0 8947
CONGO
0
0 9477
COOK ISLANDS
0
0 10478
COLOMBIA
1
0 929.6
COMOROS
0
0 12839
CAPE VERDE
0
0 4962
COSTA RICA
1
0 1572
CUBA
1
0 1486
CHRISTMAS ISLAND
0
0.
CAYMAN ISLANDS
0
0 1437
CYPRUS
0
0 10399
229
Appendix D
Trade Link between Countries (Partial)
C
an
ad
a
U
SA
Ar
ge
nt
in
a
Bo
liv
ia
Br
az
il
C
hi
le
C
ol
om
bi
C
a
os
ta
R
ic
a
Ec
ua
do
EL
r
Sa
lv
ad
G
or
ua
te
m
al
a
G
uy
an
a
H
on
du
ra
s
M
ex
ic
o
N
ic
ar
ag
ua
Pa
na
m
a
Pa
ra
gu
ay
Pe
ru
U
ru
gu
ay
Ve
ne
zu
el
Su
a
rin
am
G
re
e
a
230
Canada
USA
Argentina
Bolivia
Brazil
Chile
Colombia
Costa Rica
Ecuador
EL Salvador
Guatemala
Guyana
Honduras
Mexico
Nicaragua
Panama
Paraguay
Peru
Uruguay
Venezuela
Suriname
Greater Antilles
Puerto Rico
Cuba
Lesser Antilles
Albania
Armenia
Austria
Azerbaijan
Belarus
Belgium
Bulgaria
Czech
1
1
0
0
0
0
0
0
0
0
0
0
0
1
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
1
1
0
0
0
0
0
0
0
0
0
0
0
1
0
0
0
0
0
0
0
0
0
0
0
0
0
1
0
0
1
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
1
1
0
0
0
0
0
0
0
0
0
0
0
1
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
231
Appendix E
Number of Top International Contractors in Each Market (1992-2001)
232
Country
Canada
United States
Argentina
Bolivia
Brazil
Chile
Colombia
Costa Rica
Ecuador
EL Salvador
Guatemala
Guyana
Honduras
Mexico
Nicaragua
Panama
Paraguay
Peru
Uruguay
Venezuela
Suriname
Greater Antilles
Puerto Rico
Cuba
Lesser Antilles
Albania
Armenia
Austria
Azerbaijan
Belarus
Belgium
Bulgaria
Czech Republic
Denmark
Estonia
Finland
France
Georgia
Germany
Greece
Hungary
Ireland
Italy
Latvia
Lithuania
Moldova
Netherlands
Norway
Poland
Portugal
1992
47
65
23
10
27
29
19
6
13
8
10
5
9
50
1
7
9
13
5
38
0
14
18
0
17
1
1
21
2
7
35
4
24
18
4
9
41
1
46
22
19
15
20
1
1
1
26
15
22
31
1993
48
69
22
10
28
31
23
7
16
8
7
6
8
59
4
9
10
14
8
40
0
16
19
0
21
2
1
22
3
9
41
4
25
20
6
10
34
1
58
22
18
17
27
7
3
2
34
17
31
37
1994
50
69
25
9
23
31
33
8
19
11
6
2
7
54
4
11
10
14
8
33
0
22
18
0
13
2
1
15
2
5
34
3
27
22
6
10
30
1
65
23
18
17
23
6
6
1
33
19
30
32
1995
47
65
24
11
21
29
30
7
16
12
9
2
8
50
5
12
7
16
5
30
0
21
19
0
12
2
0
19
1
4
32
7
29
22
7
8
42
2
62
17
21
20
21
7
5
0
33
17
35
30
1996
44
61
36
11
34
33
36
3
22
9
10
3
6
51
4
9
6
22
5
31
0
23
20
0
18
2
1
20
5
5
25
3
28
26
3
5
36
0
57
24
24
20
22
4
5
0
30
18
39
35
1997
53
57
41
9
34
42
36
5
13
10
10
2
5
51
3
12
6
23
10
35
0
26
26
0
13
3
2
20
10
4
29
3
26
23
4
9
29
8
52
23
24
19
25
4
4
0
30
23
35
38
1998
45
63
45
9
43
40
33
5
18
10
11
4
6
48
8
13
4
23
12
32
0
24
28
0
17
4
1
19
11
2
30
7
30
25
5
9
37
3
55
21
24
20
37
3
6
2
31
19
39
37
1999
56
45
44
9
40
33
25
5
13
6
6
2
6
51
8
13
3
23
8
39
0
28
27
0
22
3
2
21
13
0
29
7
29
16
4
9
46
5
53
21
26
25
39
5
5
0
34
19
43
35
2000
58
55
35
7
36
25
23
4
13
4
6
2
4
54
7
10
1
24
5
35
0
34
26
0
28
6
2
17
12
0
30
9
24
16
5
7
37
5
47
24
17
19
36
6
7
0
27
14
32
30
2001
61
46
28
12
51
24
19
10
12
2
5
0
4
54
5
7
0
20
5
36
4
19
30
5
29
6
0
10
10
0
23
10
20
12
4
9
38
2
45
23
15
23
36
4
5
2
26
12
26
24
233
Appendix F
Entry Restriction
234
Country
Korea, South
China
Malaysia
Thailand
Japan
Singapore
Hong Kong
Vietnam
Philippines
Indonesia
India
Australia
USA
Canada
Mexico
Brazil
Chile
Argentina
Peru
Venezuela
Poland
Russia
Romania
Czech
Finland
Germany
United Kingdom
Netherlands
France
Spain
Belgium
Israel
Oman
Pakistan
Saudi Arabia
UAE
Kuwait
Turkey
Egypt
Nigeria
South Africa
Variance
Legal barriers
1
2
3
4
0
0
0
0
1
4
3
0
0
0
4
1
0
0
0
0
0
0
0
0
1
0
0
0
1
0
0
1
3
3
3
4
4
1
4
0
0
2.40
Other barriers
3
4
2
2
6
2
2
3
3
3
2
1
1
1
2
2
2
2
2
2
1
1
1
1
3
3
3
3
3
3
3
4
1
3
3
3
2
2
2
2
2
1.03
Index
4.58
8.60
3.82
5.28
17.47
1.94
1.94
4.37
4.58
7.71
3.82
0.49
0.49
0.49
5.28
2.15
1.94
1.94
1.94
1.94
0.49
0.49
0.49
0.49
4.58
4.37
4.37
4.37
4.58
4.37
4.37
7.97
2.36
6.25
6.25
7.71
5.28
2.15
5.28
1.94
1.94
3.92
235
Appendix G
Construction Spending (1996 – 2000)
236
Country
Albania
Algeria
Angola
Argentina
Armenia
Australia
Austria
Azerbaijan
Bahamas, The
Bahrain
Bangladesh
Barbados
Belarus
Belgium
Belize
Benin
Bhutan
Bolivia
Bosnia and Herz
Botswana
Brazil
Bulgaria
Burkina Faso
Burundi
Cambodia
Cameroon
Canada
Cape Verde
Central African R
Chad
Chile
China
Colombia
Congo,Dem Rep
Congo, Rep.
Costa Rica
Cote D'ivoire
Croatia
Cyprus
Czech Republic
Denmark
Dominican repub
Ecuador
Egypt, Arab Rep
El Salvador
Eritrea
Estonia
Ethiopia
Finland
France
1996
248.30
7,199.80
271.30
30,252.90
160.00
36,641.00
11,700.00
572.90
285.20
781.60
3,168.50
229.90
2,159.10
24,268.42
65.90
120.90
311.40
510.60
476.10
90,541.00
306.50
809.80
216.50
63.00
457.10
594.00
64,200.80
105.80
82.10
82.00
8,512.80
144,341.00
9,316.10
178.70
1,117.60
400.00
1,298.50
1,836.10
1,355.10
7,346.00
20,407.77
3,071.30
980.80
8,452.90
626.10
94.00
601.30
255.80
7,410.40
109,315.88
1997
1998
1999
2000
247.90
8,005.70
373.90
36,984.70
163.30
38,366.18
11,289.00
899.40
206.70
805.80
2,909.00
261.30
1,971.40
22,054.02
61.70
130.30
320.50
558.60
462.50
98,357.20
322.40
765.20
241.20
66.10
463.70
624.10
67,048.50
109.30
89.70
104.40
9,074.60
161,662.70
9,293.80
176.90
1,053.90
535.00
1,436.30
2,000.30
1,219.50
6,481.00
18,459.65
3,675.00
1,041.50
10,312.50
667.50
113.50
669.80
278.00
7,616.00
94,463.12
220.70
7,460.60
476.80
41,644.80
95.10
39,133.00
10,881.70
956.40
225.80
825.00
3,081.70
269.10
1,872.90
23,775.35
67.00
137.10
320.50
651.00
483.10
102,094.77
341.50
769.90
260.70
70.20
447.40
699.10
71,962.70
110.80
94.70
168.00
9,745.20
185,912.10
9,552.50
159.40
1,022.30
895.00
1,585.90
2,142.00
1,196.80
8,120.40
19,297.04
3,373.65
1,021.80
12,375.00
678.50
115.90
712.80
297.40
8,005.70
97,978.98
253.83
7,016.36
439.22
38,059.61
94.48
41,303.02
10,999.32
698.16
254.21
913.79
3,230.97
278.38
1,570.62
24,337.17
76.81
151.16
389.35
653.43
545.89
116,034.20
319.13
858.66
248.63
62.04
478.69
706.12
74,736.41
126.36
97.14
210.25
7,903.03
190,376.95
9,004.71
155.17
682.26
1,036.25
1,687.66
2,123.90
1,138.85
8,574.41
18,269.51
4,320.19
566.81
14,313.46
673.74
114.66
588.56
325.26
8,180.76
103,206.67
289.52
8,271.98
454.58
35,999.42
99.67
43,833.78
11,210.08
872.95
267.04
1,004.71
3,488.08
290.20
1,584.40
24,672.75
83.57
155.59
411.44
698.84
667.21
115,301.10
341.81
942.19
256.02
60.96
490.82
978.51
78,557.66
132.76
97.90
278.83
7,957.56
205,793.08
9,368.54
179.80
682.33
1,122.31
1,669.41
2,176.72
1,203.26
9,045.64
19,272.94
4,608.85
629.11
15,215.08
675.93
119.12
728.25
341.38
8,688.95
108,208.13
237
Appendix H
Revenue of International Contractors (Partial)
238
1992
1993
1994
1995
Firm
International Global reven International Global reven International Global reven International Global revenu
Bechtel, San Francisco, Calif., UUSA
$15,173
$23,657
$8,445
$14,850
$1,602
$6,553
$3,165
$7,407
The M.W. Kellogg Co.
USA
$10,358
$13,419
$7,132
$9,138
$938
$1,124
$965
$1,296
Kellogg Brown & Root
USA
$10,275
$13,718
$6,373
$9,503
$1,091
$2,621
$1,300
$2,743
Foster Wheeler Ltd., Clinton, N. USA
$6,346
$8,794
$2,856
$5,841
$1,164
$1,704
$1,405
$2,133
ABB Lummus Global, Bloomfiel USA
$6,285
$7,870
$2,738
$3,221
$784
$1,051
$887
$1,121
Fluor Corp., Aliso Viejo, Calif., UUSA
$4,880
$22,946
$11,348
$25,294
$2,412
$6,638
$3,625
$7,501
Bouygues, Guyancourt, France France
$2,933
$9,779
$3,142
$9,637
$3,169
$11,224
$3,891
$12,418
Philipp Holzmann AG
Germany
$2,732
$11,976
$3,684
$12,573
$2,311
$11,716
$2,775
$13,656
Morrison Knudsen Corp.
USA
$2,316
$4,887
$2,744
$5,030
$676
$2,516
$318
$1,707
GTM-Entrepose
France
$2,150
$5,292
$2,177
$5,371
$3,276
$7,948
$3,077
$8,047
Bilfinger Berger AG, Mannheim,Germany
$2,028
$4,264
$1,220
$3,246
$1,949
$4,411
$2,676
$5,363
HBG Constructors Inc., LongmoUSA
$1,895
$3,056
$1,540
$2,960
$1,941
$3,225
$2,040
$3,384
Fiatimpresit SPA
Italy
$1,887
$4,208
$1,811
$2,406
$1,614
$2,286
$2,758
$3,856
Mitsubishi Heavy Industries Ltd. Japan
$1,857
$9,638
$2,935
$13,664
$4,320
$15,309
$5,725
$17,428
TECHNIP-COFLEXIP, Paris, Fr France
$1,700
$1,870
$2,030
$2,100
$415
$439
$1,731
$1,781
Stone & Webster Engineers andUSA
$1,671
$7,307
$2,225
$8,482
$66
$341
$34
$372
Bovis Lend Lease, London, U.K UK
$1,325
$2,105
$4,855
$5,970
$1,613
$2,594
$1,436
$2,308
Ansaldo SPA
Italy
$1,310
$3,637
$1,823
$2,372
$1,512
$2,735
$1,618
$2,637
CEGELEC
France
$1,294
$2,942
$1,625
$3,166
$1,280
$3,068
$1,505
$3,424
Spie Batignolles
France
$1,285
$3,940
$970
$3,031
$1,177
$3,317
Consolidated Contractors Int'l CGreece
$1,263
$1,263
$1,450
$1,450
$1,098
$1,098
$1,430
$1,430
JGC Corp., Yokohama, Japan Japan
$1,262
$2,156
$2,241
$2,989
$1,871
$2,825
Hochtief, Essen, Germany
Germany
$1,182
$5,319
$2,260
$5,973
$2,319
$6,751
$214
$1,492
Hyundai Eng’g & Constr. Co. LtdKorea, Sou
$1,152
$3,422
$1,112
$4,966
Snamprogetti SpA, Milan, Italy Italy
$1,137
$1,649
$552
$778
$551
$725
$845
$1,030
Ballast Nedam N.V., Nieuwegei Netherland
$1,074
$1,685
$1,448
$2,093
$930
$1,638
$825
$1,875
Shimizu Corp., Tokyo, Japan Japan
$1,071
$17,653
$921
$13,727
$909
$17,914
$1,116
$15,250
Filippo Fochi SPA
Italy
$1,030
$1,270
$591
$691
Traflgar House Engrg. & Constr UK
$1,007
$2,172
$736
$1,680
$6,795
$9,044
IRITECNA SPA
Italy
$1,005
$3,059
Nishimatsu Construction Co. LtdJapan
$939
$7,055
$1,654
$6,429
$747
$6,923
$1,063
$6,750
Kajima Corp., Tokyo, Japan
Japan
$939
$15,477
$964
$12,196
$1,234
$13,276
Obayashi Corp., Tokyo, Japan Japan
$918
$13,357
$927
$10,799
$1,006
$16,083
$935
$11,966
China Harbour Engineering Co. China
$916
$2,368
$303
$1,901
$410
$1,990
$413
$1,526
ABB SAE Sadelmi SAP
Italy
$898
$1,157
$686
$846
$559
$761
$692
$822
239
Appendix I
Entry Times of International Contractors (1992 – 2001, Partial)
ABB Lummus Global, Bloomfield, N.J., U.S.A.
ACS-Actividades de Construction y Servicios SA, Madr
Aecon Group Inc., Toronto, Ont., Canada
J.S. Alberici Corp., St. Louis, Mo., U.S.A.
Alsim Alarko/Alarko Contracting Group, Gebze-Kocaeli
AMEC plc, London, U.K.
American Bridge Co., Coraopolis, Pa., U.S.A.
American Sports Products Group Inc., Leander, Texas,
Arabian Construction Co., Beirut, Lebanon
ARB Inc., Lake Forest, Calif., U.S.A.
Astaldi SpA, Rome, Italy
b e b ingg. group, Sesto San Giovanni, Italy
B.L. Harbert International LLC, Birmingham, Ala., U.S.A
Balfour Beatty plc, London, U.K.
Ballast Nedam N.V., Nieuwegein, The Netherlands
Bauer Spezialtiefbau GmbH, Schrobenhausen, German
Bayindir Construction Inc., Ankara, Turkey
Baytur Construction and Contracting Co., Istanbul, Turk
BE&K Inc., Birmingham, Ala., U.S.A.
Bechtel, San Francisco, Calif., U.S.A.
Beijing Construction Engineering Co. Ltd., Beijing, Chin
Beijing Urban Construction Group Co. Ltd., Beijing, Chi
Bentini Group, Faenza, Italy
BESIX, Brussels, Belgium
Bilfinger Berger AG, Mannheim, Germany
Bird Construction Co., Toronto, Ontario, Canada
Black & Veatch, Kansas City, Mo., U.S.A.
Bouygues, Guyancourt, France
Bovis Lend Lease, London, U.K.
Caddell Construction Co. Inc., Montgomery, Ala., U.S.A
CCC Group Inc., San Antonio, Texas, U.S.A.
CCI Telecom Inc., San Antonio, Texas, U.S.A.
2
0
0
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2
2
10
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0
0
6
7
3
0
1
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0
1
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1
0
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9
7
4
3
7
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10
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10 10
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0
0
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0
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0
0
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0
0
0
4
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0
0
0
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0
6
0
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0
0
0
0
0
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0
0
0
0
0
0
0
0
0
0
0
3
0
0
0
0
2
0
0
0
0
0
0
0
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0
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0
0
0
0
0
0
0
0
0
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7
1
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0
0
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0
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0
0
0
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0
0
0
0
0
1
0
0
0
0
0
0
6
0
0
0
1
0
3
0
0
0
0
2
6
0
0
6
9
0
0
1
0
6
0
5
9
4
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1
0
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6
0
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0
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0
0
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4
0
1
0
0
0
0
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0
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0
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0
0
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0
0
0
0
0
0
0
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0
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0
1
0
0
0
0
0
0
0
0
0
5
0
0
0
0
0
0
0
0
3
2
0
0
0
1
1
0
0
0
9
0
0
0
0
0
0
1
1
0
0
0
0
0 10
0
0
0
0
0
0
0
0
0
1
4
0
0
0
0
0
0
0
0
7
0
0
0
0
0
3
4
1
0
0
0
0
0
0
0
0
0
9
0
0
0
0
1
0
0
0
0
0
0
0
0
6
1
1
0
0
0
0
0
0
0
2
Suriname
Venezuela
Uruguay
Peru
Paraguay
Panama
Nicaragua
Mexico
Honduras
Guyana
Guatemala
EL Salvador
Ecuador
Costa Rica
Colombia
Chile
Brazil
Bolivia
Argentina
United State
Canada
240
0
0
0
0
0
0
0
0
0
0
0
0
0
0
1
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
1
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
241
Appendix J
World Bank Country Groups by Income
242
Low-income economies (61)
Afghanistan
Guinea-Bissau
Haiti
Angola
India
Bangladesh
Benin
Kenya
Bhutan
Korea, Dem Rep.
Burkina Faso
Kyrgyz Republic
Burundi
Lao PDR
Cambodia
Lesotho
Cameroon
Liberia
Central African Republic
Madagascar
Chad
Malawi
Comoros
Mali
Congo, Dem. Rep
Mauritania
Moldova
Congo, Rep.
Cote d'Ivoire
Mongolia
Equatorial Guinea
Mozambique
Eritrea
Myanmar
Ethiopia
Nepal
Gambia, The
Nicaragua
Ghana
Niger
Guinea
Nigeria
Lower-middle-income economies (56)
Albania
Georgia
Algeria
Guatemala
Armenia
Guyana
Honduras
Azerbaijan
Belarus
Indonesia
Bolivia
Iran, Islamic Rep.
Bosnia and Herzegovina
Iraq
Brazil
Jamaica
Jordan
Bulgaria
Cape Verde
Kazakhstan
China
Kiribati
Colombia
Macedonia, FYR
Cuba
Maldives
Djibouti
Marshall Islands
Dominican Republic
Micronesia, Fed. Sts.
Ecuador
Morocco
Egypt, Arab Rep.
Namibia
El Salvador
Paraguay
Fiji
Peru
Pakistan
Papua New Guinea
Rwanda
Sao Tome and Principe
Senegal
Sierra Leone
Solomon Islands
Somalia
Sudan
Tajikistan
Tanzania
Timor-Leste
Togo
Uganda
Uzbekistan
Vietnam
Yemen, Rep.
Zambia
Zimbabwe
Philippines
Romania
Russian Federation
Samoa
Serbia and Montenegro
South Africa
Sri Lanka
Suriname
Swaziland
Syrian Arab Republic
Thailand
Tonga
Tunisia
Turkey
Turkmenistan
Ukraine
Vanuatu
West Bank and Gaza
243
Upper-middle-income economies (37)
American Samoa
Grenada
Antigua and Barbuda
Hungary
Argentina
Latvia
Barbados
Lebanon
Belize
Libya
Botswana
Lithuania
Chile
Malaysia
Costa Rica
Mauritius
Croatia
Mayotte
Czech Republic
Mexico
Dominica
Northern Mariana Islands
Estonia
Oman
Gabon
Palau
High-income economies (54)
Andorra
Germany
Aruba
Greece
Australia
Greenland
Austria
Guam
Bahamas, The
Hong Kong, China
Bahrain
Iceland
Belgium
Ireland
Bermuda
Isle of Man
Brunei
Israel
Canada
Italy
Cayman Islands
Japan
Channel Islands
Korea, Rep.
Cyprus
Kuwait
Denmark
Liechtenstein
Faeroe Islands
Luxembourg
Finland
Macao, China
France
Malta
French Polynesia
Monaco
Panama
Poland
Saudi Arabia
Seychelles
Slovak Republic
St. Kitts and Nevis
St. Lucia
St. Vincent and the Grenadines
Trinidad and Tobago
Uruguay
Venezuela, RB
Netherlands
Netherlands Antilles
New Caledonia
New Zealand
Norway
Portugal
Puerto Rico
Qatar
San Marino
Singapore
Slovenia
Spain
Sweden
Switzerland
United Arab Emirates
United Kingdom
United States
Virgin Islands (U.S.)
244
Appendix K
Permanent Entries of International Contractors (Partial)
(The Case of Shimizu)
245
Entrant
Shimizu
Shimizu
Shimizu
Shimizu
Shimizu
Shimizu
Shimizu
Shimizu
Shimizu
Shimizu
Shimizu
Shimizu
Shimizu
Shimizu
Shimizu
Shimizu
Shimizu
Shimizu
Shimizu
Shimizu
Shimizu
Shimizu
Shimizu
Shimizu
Shimizu
Shimizu
Shimizu
Shimizu
Shimizu
Shimizu
Shimizu
Shimizu
Shimizu
Shimizu
Shimizu
Shimizu
Shimizu
Home country
Japan
Japan
Japan
Japan
Japan
Japan
Japan
Japan
Japan
Japan
Japan
Japan
Japan
Japan
Japan
Japan
Japan
Japan
Japan
Japan
Japan
Japan
Japan
Japan
Japan
Japan
Japan
Japan
Japan
Japan
Japan
Japan
Japan
Japan
Japan
Japan
Japan
Host Country
USA
USA
USA
Canada
Singapore
Singapore
Singapore
UK
Germany
Hungary
Czech
Poland
Russia
Netherlands
Belgium
Zambia
Mexico
Malaysia
Malaysia
Indonesia
Indonesia
Philippines
Thailand
Vietnam
Bangladesh
China
China
China
China
HK
HK
Taiwan
Taiwan
Taiwan
Taiwan
Brazil
Australia
Year
Entry mode
1962 Representatives
1974 Representative office
1981 Wholly owned subsidiary
Subsidiary
1973 Branch office
1998 asian branch company (headquarters)
Subsidiary
Wholly owned subsidiary
Wholly owned subsidiary
Wholly owned subsidiary
Branch office/Wholly owned subsidiary
Wholly owned subsidiary
Wholly owned subsidiary
Subsidiary
Subsidiary
Branch office
Wholly owned subsidiary
1982 Branch office
1981 JV
1983 Branch office
JV
1989 Wholly owned subsidiary
1984 Joint venture (49%)
Branch office
Branch office
1985 Liaison office
1998 Overseen by people at singapore
2002 Increase crew to govern business in China
2003 Wholly owned subsidiary
1976 Branch office
1978 Wholly owned subsidiary
1986 Representative office
Subsidiary
1989 Acquired wholly owned subsidiary
1993 representative office changed to Branch office
1973 Wholly owned subsidiary
Subsidiary
246
Appendix L
ENR Country Group by Region
247
North America
Canada
United States
Latin America
Argentina
Bolivia
Brazil
Chile
Colombia
Costa Rica
Ecuador
EL Salvador
Guatemala
Guyana
Honduras
Mexico
Nicaragua
Panama
Caribbean Islands
Greater Antilles
Puerto Rico
Cuba
Lesser Antilles
Europe
Albania
Armenia
Austria
Azerbaijan
Belarus
Belgium
Bulgaria
Czech Republic
Denmark
Estonia
Finland
France
Georgia
Germany
Greece
Hungary
Ireland
Italy
Latvia
Lithuania
Moldova
Netherlands
Norway
Poland
Portugal
Romania
Russia
Slovakia
Spain
Sweden
Switzerland
Ukraine
United Kingdom
Yugoslavia
Bosnia & Herz.
Croatia
FYR Macedonia
Slovenia
Middle East
Afghanistan
Bahrain
Cyprus
Iran
Iraq
Israel
Jordan
Kuwait
Lebanon
Oman
Pakistan
Qatar
Saudi Arabia
Syria
Turkey
U.A.E
Yemen
Paraguay
Peru
Uruguay
Venezuela
Suriname
248
Asia/Pacific
Australia
Bangladesh
Brunei
Myanmar
China (P.R.C.)
Macau
Diego Garcia
Hong Kong
India
Indonesia
Japan
Kazakhstan
Korea, South
Korea, North
Kyrgyzstan
Malaysia
Nepal
New Zealand
Pacific Islands
Papua New Guinea
Philippines
Singapore
Sri Lanka
Taiwan
Tajikistan
Thailand
Turkmenistan
Uzbekistan
Vietnam
Laos
Mongolia
North Africa
Algeria
Egypt
Ethiopia
Libya
Morocco
Niger
Somalia
Sudan
Sub Sahara
Tunisia
Central/South Africa
Angola
Benin
Botswana
Burkina Faso
Burundi
Cameroon
Cape Verde Isl.
Congo Republic
Gabon
Gambia
Ghana
Guinea
Ivory Coast
Kenya
Lesotho
Liberia
Malawi
Mozambique
Nigeria
Rwanda
Senegal
Sierra Leone
South Africa
Swaziland
Tanzania
Uganda
Congo DR (Zaire)
Zambia
Zimbabwe
Total (This database)
Number of entries
Conentrate ratio
249
Appendix M
Market Entries of Selected International Contractors (Part of the Matrix for the
Year 2001)
250
Besix
Bilfinger
Bovis
China Harbour
Chiyoda
Clough
CSCEC
CTCI
Daewoo
Daewoo Engineering
EEI
Ferrovial
Foster Wheeler
Fujita
HOCHTIEF
Hyundai
Jacobs
JGC
Joannou
Kajima
Kinden
Leighton
McConnell
Ohbayashi
POSCO
Shimizu
SK
Ssangyong
Taikisha
Takenaka
TRACTEBEL ENGINEERING
Wuyi
You one
0
0
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1
0
1
0
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1
1
1
1
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1
1
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1
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1
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1
1
0
0
0
0
0
1
0
0
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0
0
0
0
0
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0
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1
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0
1
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1
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0
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1
0
0
0
1
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
1
1
0
0
0
0
0
0
0
0
0
0
1
0
0
1
0
0
0
0
0
0
0
1
0
0
1
1
1
0
0
0
0
0
0
0
0
0
0
0
0
0
1
1
0
0
0
1
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
1
0
0
0
0
0
0
0
0
0
1
1
0
0
0
1
0
0
0
0
0
0
0
0
1
0
0
1
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
1
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
1
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
1
1
0
0
0
0
0
0
0
1
0
0
0
1
1
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
1
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
1
0
0
0
1
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
Lesser Antilles
Cuba
Puerto Rico
Greater Antilles
Suriname
Venezuela
Uruguay
Peru
Paraguay
Panama
Caribbean Islands
Nicaragua
Mexico
Honduras
Guyana
Guatemala
EL Salvador
Ecuador
Costa Rica
Colombia
Chile
Brazil
Bolivia
Latin America
Argentina
Countries
United States
Contractors
Canada
North A
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
251
Appendix N
ENR Top 225 International Construction Firms (Year 2001)
252
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
Skanska AB
12,152.00
Hochtief
9,516.00
VINCI
6,030.00
Bouygues
5,771.00
halliburton KBR
4,462.00
Bechtel
3,993.00
Bovis Lend Lease
3,652.00
AMEC plc
2,835.60
TECHNIP-COFLEXIP
2,456.00
Bilfinger Berger AG
2,294.00
Fluor Corp.
2,266.70
2,036.20
Hyundai Eng'g & Constr. Co.
Grupo Ferrovial
1,419.00
Consolidated contractors Int
1,385.70
Kajima Corp.
1,295.00
Foster Wheeler Ltd.
1,281.00
ABB Lummus Global
1,208.10
Dgrupo Dragados
1,195.50
Balfour Beatty plc
1,183.00
PCL Construction Enterprises 1,146.00
IMPREGILO SpA
1,134.00
China State Constr. Engineer 1,093.50
Jacobs
1,056.80
STRABAG AG
1,052.00
JGC Corp.
1,051.00
Ballast Nedam N.V.
970.30
909.70
Joannou & Paraskevaides (O
Toyo Engineering Corp.
871.00
Construtora Odebrecht
843.00
EIFAGE
803.00
Shimizu corp.
793.50
Obayashi Corp.
752.00
Snamprogetti SpA
724.00
FCC Sa
707.10
695.00
Technint Compagnia Tecnica
691.50
Washington Group Internatio
Leighton Holdings Ltd.
691.00
Nishimatsu Construction Co.
618.20
Takenaka Corp.
609.00
594.00
Penta-Ocean Construction C
589.10
China Harbour Engineering C
586.00
Paul Y.-ITC Constr. Holdings
SKEC
576.00
McDermott International Inc.
521.70
Kumagai Gumi Co.Ltd.
497.00
14,342.00
11,682.00
15,378.00
12,830.00
5,858.00
11,299.00
4,785.00
5,241.90
2,467.00
3,785.10
7,194.30
4,245.00
4,240.00
1,385.70
12,171.00
2,184.00
1,401.20
4,582.10
4,050.00
2,074.00
2,283.00
5,815.80
2,435.50
2,974.00
1,521.00
2,087.20
909.70
1,038.00
1,327.00
5,642.00
9,893.70
9,972.00
1,140.00
4,632.90
1,051.00
3,589.00
2,197.00
3,745.70
8,803.00
3,009.00
2,225.70
1,407.00
1,476.00
984.30
5,396.00
57
64
14
25
1
1
74
10
23
18
30
19
36
3
5
3
1
5
1
3
3
1
5
1
2
29
1
1
2
2
34
5
4
7
7
24
7
2
8
3
13
1
1
1
5
2
2
36
2
14
56
13
72
38
7
1
4
1
4
2
6
2
4
1
11
31
9
45
51
9
56
58
47
34
29
9
3
33
2
42
2
1
1
3
45
2
47
18
1
1
1
3
26
3
1
1
1
16
9
40
21
22
32
4
3
2
1
32
25
15
2
57
20
60
100
7
2
20
4
81
4
100
14
9
87
2
5
1
100
17
63
13
29
2
10
7
12
14
71
51
1
10
94
11
62
37
4
4
3
2
19
13
57
57
1
6
1
60
4
15
Telecom
5
3
2
49
10
19
50
21
12
1
3
26
78
17
21
20
4
37
7
1
1
3
32
31
3
28
32
1
21
58
1
3
20
69
26
13
11
45
100
100
14
Hazardous
Waste
Transport
Industrial/
Petroleum
Sewer/Waste
Water
Power
Manuf
Segmentation (%)
Building
Global
Rank
Contractor
International
Revenue ($Mil)
25
8
253
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
70
71
72
73
74
75
76
77
78
79
80
81
82
83
84
85
86
87
88
89
90
91
92
93
94
95
96
97
Grinaker-LTA Ltd.
Taisei Corp.
Earth Tech
BeESIX
CNMEG
EllisDon Construction Inc.
Taikisha Ltd.
Chicago Bridge & iron Co.
Parsons
SACYR SA
NECSO Entrecanales Cubier
Shanghai Construction (Grou
Enelpower SpA
Peter Kiewit Sons' Inc.
Veidekke ASA
Daewoo E& C Co. Ltd.
Astaldi SpA
Heerema Fabrication Group
Tecnimont SpA
Zubllin
Obrascon Huarte Lain SA
Structure tone Inc.
China Civil Engineering Cons
Black & Veatch
Centex
Chiyoda Corp.
CMEC
China Railway Engineering C
China Road & Bridge corp.
J.A. Jones Inc.
Dongfang Electric corp.
Global Industries Inc.
Tekfen Constr. & Installation
The Kvaerner Group
Fortum Enginenering
Sumitomo Construction Co.L
Willbros Group Ihc.
Enka constr. & Industry Co.In
E. Pihl & son AS
Mcconnell Dowell Corp. Ltd.
the Arab Contractors O.A.O.
SKE Group
Solel boneh International ltd.
Tractebel Engineeirng
Chian Metallurgical Constr. (G
Bauer Spezialtiefbau GmbH
National petroleum constr. Co
Alberici Corp.
Arabian Construction Co.
ACS-Actividades de Construc
Construtora Andrade Gutierre
The Shaw Group Inc.
492.00
476.00
475.00
457.10
456.60
440.80
423.80
417.00
411.60
408.10
388.00
379.50
361.40
353.90
339.90
328.00
306.40
306.00
300.00
290.00
289.20
284.00
277.40
268.80
267.80
263.00
250.70
249.20
243.40
221.00
217.20
214.10
196.60
193.50
185.00
184.70
182.70
177.60
171.10
165.00
164.40
158.00
157.60
156.10
151.00
149.40
147.00
143.30
139.20
139.20
137.00
133.80
1,164.00
8
11,297.00 49
1,104.00
3
748.40 14
783.10
668.40 46
3.00 79
1,082.00
1,406.80
3
1,046.50
2,282.00 23
2,491.30 100
963.80
3,850.40
962.40 80
2,343.00
9
646.60
1
334.00
305.00
1,460.00 34
1,859.80 16
1,985.00 54
286.30 47
1,430.10
7
6,284.90 100
793.00
384.70
4,781.80
8
1,389.10 51
2,861.90 36
217.20
406.10
337.70
7
909.70
190.00
2,032.20 28
331.10
599.20 52
270.50 27
211.00
1,344.70 27
219.00 90
157.60
8
175.60
1,737.30 20
320.40 29
296.00
836.80 10
162.20 75
1,678.90
544.00
2
1,060.50
5
14
3
3
12
9
32
5
3
20
1
3
24
8
33
1
11
10
90
80
10
10
1
7
100
36
1
1
3
4
9
2
5
1
2
2
1
55
5
2
29
10
30
23
11
74
18
42
4
98
63
19
17
28
93
15
10
33
3
1
100
100
7
84
46
1
4
32
27
48
49
4
2
28
46
4
51
12
5
15
1
34
92
44
34
15
100
100
78
81
5
12
100
13 10
10
7
16
1
14
100
9
10
50
5
17
7
18
100
1
1
15
10
9
4
27
39
47
33
48
5
2
3
73
5
60
27
100
1
13
1
6
89
23
1
12
72
2
82
27
254
98
99
100
101
102
103
104
105
106
107
108
109
110
111
112
113
114
115
116
117
118
119
120
121
122
123
124
125
126
127
128
129
130
131
132
133
134
135
136
137
138
139
140
141
142
143
144
145
146
147
148
149
Ssangyong Eng'g & constr. C
China Petroleum Eng'g const
China Jangsu Int'l Econ9Tec
Tecnicas Reunidas Group
Contracting & Trading C.A.T.
Energoprojekt Group
Aecon Group Inc.
Ircon International ltd.
Kinden Corp.
Chian Int'l Water & eletric Co
per Aarsleff A/S
Bentini Group
CMC di Ravenna
Dick Corp.
Parsons Brinckerhoff Inc.
China National Chemical Eng
Prezioso SAS
Chian Railway Construction C
China National Overseas Eng
Contrck Internatioanl Inc.
TEKSER Constr. Industry and
Chian Natr'l Complete Plant I
China Wanbao Engineering C
China Wu Yi Corp.
Grandi Lavori Fincosit SpA
STFA Construction Group
VECO Corp.
Bayindir Construction Inc.
BE&K Inc.
Hanjin Heavy Ind. & Construc
China Nat'l Water Res.& Hyd
GAMA AS
Maeda Corp.
salini costruttori SpA
RSEA Engineering Corp.
China Shanghai SFECO
Intecsa-Uhde Industrial SA
fisher Development Inc.
Rizzani de Echer
todini
glavbolgarstroy
Harbin power eng'g Co. ltd.
Walbridge Aldinger
Zhejiang Constr. Eng'g Group
Tutor-Saliba Corp.
Great Lakes Dredge & Dock
CTCI Corp.
toda Corp.
Granit construction Stock co.
China Elec. Power Tech.Impo
Gemmo Impianti SpA
Italian-Thai Development PC
132.00
131.90
127.60
123.00
121.60
121.30
119.30
115.50
112.00
109.90
107.00
100.30
100.00
99.00
98.70
96.50
93.70
91.50
89.80
87.10
86.10
85.40
83.50
80.80
79.00
76.20
74.70
73.80
73.80
72.80
71.40
70.80
70.00
68.10
64.00
63.00
62.10
62.00
58.40
57.70
57.00
55.50
54.00
51.00
49.80
48.80
48.40
47.00
45.00
44.20
44.00
43.50
1,100.00 72
213.90
178.30 92
1
327.00
8
143.70
3
165.20 63
18
592.60 19
23
179.40
8
3,531.00 38 24
3
174.40
9
10
310.00
5
2
107.50 23
27
261.00 16
18
1,095.00 55
130.30 74
504.20 29
1
175.70
2
11
4,941.80
93.30 49
87.10 52
99.50 48
85.40 27
44
99.90
131.20 100
230.00
133.90 11
239.70
97
179.10
1,344.00
675.80
1,555.10
42
244.30
7
29
3,545.00 21 21 44
130.80
73
752.40 21
63.00 58 13
1
158.40
519.00 100
175.70 62
113.10
98.30 77
5
96.40
100
810.00
100
953.60 50
743.00 34
318.80
305.20
4
4,254.00 49 36
181.00 13
302.00
7
31
156.80
8
34
401.00
1
81
3
92
26
4
26
2
18
18
44
23
7
48
9
50
40
27
13
4
3
37
46
17
40
84
13
9
9
9
3
11
4
26
5
25
5
32
62
2
52
8
12
1
26
25
19
3
11
100
36
6
5
1
2
21
39
13
99
56
3
3
100
100
1
41
99
17
64
13
27
33
25
100
46
3
38
71
29
18
11
39
66
100
92
4
14
57
10
4
11
73
6
8
89
255
150
151
152
153
154
155
156
157
158
159
160
161
162
163
164
165
166
167
168
169
170
171
172
173
174
175
176
177
178
179
180
181
182
183
184
185
186
187
188
189
190
191
192
193
194
195
196
197
198
199
200
201
HBG constructor Inc.
The Austin Co.
B.L. Harbert International LLC
Dillingham constr. Holdings In
Baytur construction and Cont
Chna Huanqiu Chemical Eng
perini Corp.
wiemer & trachte AG
M.A. Mortenson co.
China Zhongyuan Engineerin
CH2M Hill Cos. Ltd.
Paragon Engineering Servide
MwH
The Facility Group
Bird construciotn c.
CiTIC International coop. c. L
Beijing Urban Construction G
Tetra Tech Inc.
American Bridge Co.
TSO-Travaux du Sud quest
The Stellar Group
ARB Inc.
CCC Group Inc.
Toro Inc.
Kietchell Corp.
American Sports Products G
Chian Shenyang Int''l Eco. &
Caddell Construction Co. Ltd
O'Brien & Gere Engineers Inc
Chna Huashi Enterprises Cor
Transtech Engineering corp.
Santos CMI Construction Inc
China Dalian Int'l Coop. (Gro
China tianjin Int'l Eco. & Tec.
China nat'l elec. Wire & Cabl
URS
Pomerleau
Zachry Construction Corp.
Beijing construction Engineer
Natchiq Inc.
China Power Eng'g consltg. (
alsim Alarko/alarko contractin
China Tianchen Chemical En
quattrogemini Lt.
Kandenko co. Ltd.
North China Power eng'g (Be
william A
Day 7 Zimmermann
ICOM Engineering SpA
Holder Construction Co.
b e b ingg. Group
TIC Holdings Inc.
41.00
39.70
39.40
38.00
37.40
36.80
36.00
34.90
34.50
30.50
30.20
30.00
28.90
28.20
28.00
27.40
26.30
24.00
22.60
21.00
20.90
20.00
19.70
19.00
18.70
18.40
18.30
17.50
16.70
16.70
16.50
16.50
15.50
15.20
15.00
15.00
14.40
14.30
13.30
11.90
11.80
11.50
11.10
10.80
10.70
10.20
9.90
9.00
9.00
8.10
7.50
7.10
442.00
451.20
279.00
1,147.00
82.40
55.40
1,553.00
439.50
1,127.50
42.70
530.10
30.00
211.40
213.20
253.00
27.80
1,916.30
222.60
196.40
66.70
402.70
340.00
143.50
403.00
363.00
165.30
20.50
187.50
45.00
637.80
51.00
30.90
56.60
29.40
15.00
120.00
253.80
1,939.50
1,216.90
410.60
20.70
83.60
21.10
39.60
3,684.30
12.00
216.10
720.00
25.00
490.10
10.20
1,122.80
83
70
13
36
26
16
12
17
3
18
88
53
54
10
100
72
53
28
30
16
99
96
39
4
36
16
45
55
2
100
7
100
100
82
100
100
100
100
100
100
39
100
61
25
100
89
100
75
5
16
6
15
58
34
3
7
96
8
45
64
4
4
10
86
45
2
100
100
100
16
99
9
29
46
1
100
100
51
100
27
22
73
69
100
33
10
49
9
100
67
100
10
67
33
10
100
2
35
66
70
256
202
203
204
205
206
207
208
209
210
211
212
213
214
215
216
217
218
219
220
221
222
223
224
225
225
Chengda Chem. Eng'g corp.
the Beck Group
Vecellio & Grogan inc.
hensel Phelps Construction C
weeks Marine Inc.
Cives Corp.
Weston Solutions Inc.
Lechase Construction Servic
The Yates Cos. Inc.
conestoga-rovers & Asssocia
Matrix Service Co.
Hardin Construction C. LLc
HK Systems Inc.
Corrpro Cos. Inc.
Sheehan Pipe Line construct
Korea Power eng'g Co. Inc.
Cci Telecom Inc.
Frontier - Kemper Constructo
Stantec Inc.
Daewoo Engineering Co.
The Clark Construction Grou
Graycor Inc.
manhattan Construction Co.
Michels Corp.
SECOR internatioanl Inc.
7.10
7.00
7.00
6.70
6.70
6.00
5.10
5.00
3.80
3.00
2.90
2.70
2.70
2.60
2.50
2.40
2.20
1.80
1.70
1.50
1.10
1.00
1.00
1.00
1.00
12.90
730.00
240.00
1,594.20
239.00
216.00
105.10
295.00
1,015.90
18.30
190.80
641.00
220.00
16.70
109.70
17.90
38.30
88.50
3.50
56.60
2,605.70
368.00
631.00
342.90
6.00
100
100
100
1
99
50
50
100
100
100
100
100
100
4
100
10
12
9
3
32
100
11
100
100
100
100
1
99
4
100
100
100
96
257
Appendix O
Survey Questionnaire
258
INTERNATIONAL CONSTRUCTION MARKET
ENTRY STRATEGY SURVEY
THE PENNSYLVANIA STATE UNIVERSITY
INTRODUCTION
The construction industry is increasingly globalized. With more options together with
increasing competition, construction firms must carefully design or review their entry
strategies for foreign market to survive and grow in the international construction arena.
This survey is part of an ongoing research project carried out at the Pennsylvania State
University on entry strategies for international construction market, with the purpose to
define entry modes that international construction firms commonly utilize, and identify
the factors the firms evaluate to decide whether to enter a foreign market and the factors
to select optimal entry mode (e.g. between joint venture and sole venture) to penetrate the
selected market.
Please return the completed questionnaire by mail or fax to:
Victor Chen, Department of Architectural Engineering, Penn State University,
104 Engineering Unit “A”, University Park, PA16802-1416
Fax: (814)-863-4789 Phone: (814)-863-6786
DEFINITIONS
From the market entry viewpoint, international construction is defined as where one
company of nationality of one country performs work in another country. Here the
nationality is that of the headquarters.
Market is identical to country in this research.
Entry mode is an institutional arrangement for organizing and conducting international
business transactions, e.g., wholly owned subsidiary, joint venture, and branch office.
Strategic alliance is a long-term association with a non-affiliated organization (not
including joint venture firm or contractual joint venture as in some other research).
Agency is an entry mode where a foreign company uses a local company’s name to
pursue and carry out construction works.
SECTION I: BACKGROUND INFORMATION
Name:
Designation:
Tel:
E-mail:
Company:
How many years of international construction experience do you have?
Have you been involved in market entry decision issues? O Yes O No
How many countries does your company have business in?
Where are your major foreign business located (multiple choices)?
O North America
O Latin America O Europe
O Middle East O North Africa
O Central/South Africa
O Asia/Pacific
O Caribbean Islands
Would you agree if we acknowledge you in our report for your contribution and
assistance in the survey? Personal name: O Yes O No
Organization: O Yes O No
259
SECTION II: MARKET SELECTION FACTORS
Please evaluate the influences of the following factors upon foreign market Go/No-Go (or
foreign market selection) decisions with a five point scale (1: not critical; 2: a little
critical; 3: critical; 4: very critical; and 5: extremely critical). If there are other important
factors not listed in the following table, please put them down and evaluate their
influences.
Code
C1
C2
C3
C4
C5
C6
C7
I1
I2
I3
I4
I5
F1
F2
F3
F4
F5
P1
P2
P3
P4
P5
P6
P7
P8
P9
Factors
Degree of influence
Country-Specific Factors
Country market potential
1 2 3 4 5
Competitive significance of the market
1 2 3 4 5
Anticipated noneconomic risk
1 2 3 4 5
Anticipated economic risk
1 2 3 4 5
Similarity of overseas market (cultural/religious)
1 2 3 4 5
Proximity of overseas market
1 2 3 4 5
Attitude and intervention of host government
1 2 3 4 5
Other factors? Please specify and evaluate.
1 2 3 4 5
Other factors? Please specify and evaluate.
1 2 3 4 5
Industry-Specific Factors
Intensity of competition
1 2 3 4 5
Expected profit potential
1 2 3 4 5
Government licensing requirements
1 2 3 4 5
Legal entity requirements
1 2 3 4 5
Construction demand
1 2 3 4 5
Other factors? Please specify and evaluate.
1 2 3 4 5
Other factors? Please specify and evaluate.
1 2 3 4 5
Firm-Specific Factors
Company strategic orientation/objectives
1 2 3 4 5
Stage of internationalization
1 2 3 4 5
Overseas market selection experience
1 2 3 4 5
Company international competitiveness
1 2 3 4 5
Own/accessible resources
1 2 3 4 5
Other factors? Please specify and evaluate.
1 2 3 4 5
Other factors? Please specify and evaluate.
1 2 3 4 5
Project-Specific Factors (regarding initial project(s))
Size of projects
1 2 3 4 5
Type of projects (e.g., building, manufacturing)
1 2 3 4 5
Technical complexity of projects
1 2 3 4 5
Type of client (public vs private)
1 2 3 4 5
Availability of funds for projects
1 2 3 4 5
Contract types (e.g., lump sum, cost-plus)
1 2 3 4 5
Experience of company in similar works
1 2 3 4 5
Existence of strict time limitations
1 2 3 4 5
Existence of strict quality requirements
1 2 3 4 5
Other factors? Please specify and evaluate.
1 2 3 4 5
Other factors? Please specify and evaluate.
1 2 3 4 5
260
SECTION III: ENTRY MODE DEFINITION
Each entry mode can be defined as institutional setting on any of the three levels: 1)
project level; 2) corporate level; and 3) inter-corporate level, though it is recognized that
modes on different levels can be integrated for a specific entry. This section aims at
identifying the frequency of occurring of different modes in the international construction
practice. Please evaluate the frequency of each mode that you have observed in your
industry career with a 3 point scale (0: I have never seen this mode; 1: I have seen it, but
it is not commonly used; 2: I have seen it commonly used). If there are other entry modes
not listed in the following table, please put them down and evaluate their frequency of
occurring.
Code
ENTRY MODES
FREQUENCY
OF
OCCURRING
Inter-corporate level (long-term) institutional setting
Mode 1
Mode 1.1
Mode 1.2
Mode 2
Mode 2.1
Mode 2.2
Mode 2.3
Vertical alliance/network
Alliance/network with owners
Alliance/network with suppliers/subcontractors
Horizontal alliance/network
Alliance/network with local contractors
Alliance/network with regional contractors
Alliance/network with international contractors
Other mode? Please specify and evaluate its frequency
Other mode? Please specify and evaluate its frequency
0
0
1
1
2
2
0
0
0
0
0
1
1
1
1
1
2
2
2
2
2
0
0
0
0
0
0
0
0
0
0
1
1
1
1
1
1
1
1
1
1
2
2
2
2
2
2
2
2
2
2
0
0
0
0
0
0
1
1
1
1
1
1
2
2
2
2
2
2
0
0
0
0
0
1
1
1
1
1
2
2
2
2
2
Corporate level (long-term) institutional setting
Cooperative entry modes*
Mode 3
Mode 4
Mode 5
Mode 6
Mode 7
Mode 8
Mode 9
Mode 10
Minority (<50%) equity Joint venture newly established
Minority (<50%) equity Joint venture established by acquisition
Equal (50%) equity Joint venture newly established
Equal (50%) equity Joint venture established by acquisition
Majority (>50%) equity Joint venture newly established
Majority (>50%) equity Joint venture established by acquisition
Agency
Licensing (of technology or company title to other companies)
Other mode? Please specify and evaluate its frequency
Other mode? Please specify and evaluate its frequency
Competitive entry modes*
Mode 11
Mode 12
Mode 13
Mode 14
Sole venture newly established
Sole venture established by acquisition
Branch office/company
Representative/liaison office
Other mode? Please specify and evaluate its frequency
Other mode? Please specify and evaluate its frequency
Mode 14
Mode 15
Mode 16
Contractual Joint Venture/Consortium
Project alliance/partnering
BOT/PPP/PFI approach
Other mode? Please specify and evaluate its frequency
Other mode? Please specify and evaluate its frequency
Project level (short-term) institutional setting
261
SECTION IV: ENTRY MODE SELECTION FACTORS
To select the optimal entry mode from feasible options to enter a specific foreign market,
some factors must be taken into consideration. This research focuses on selection between 1)
joint venture and 2) sole venture (including branch office/company) on corporate level.
Please evaluate the influences of the following factors upon this selection with a five point
scale (1: not critical; 2: a little critical; 3: critical; 4: very critical; and 5: extremely critical).
If there are other important factors not listed in the following table, please put them down and
evaluate their influences.
Code
C1
C2
C3
C4
C5
C6
C7
C8
C9
I1
I2
I3
F1
F2
F3
F4
F5
F6
F7
F8
Factors
Degree of influence
Host Country-Specific Factors
Attitude and intervention of host government
1 2 3 4 5
Property rights systems
1 2 3 4 5
Anticipated noneconomic risk
2 2 3 4 5
Anticipated economic risk
1 2 3 4 5
Other factors? Please specify and evaluate.
1 2 3 4 5
Other factors? Please specify and evaluate.
1 2 3 4 5
Home country-Specific Factors
Promotion of export efforts of government
1 2 3 4 5
Financing support of home country banks
1 2 3 4 5
Other factors? Please specify and evaluate.
1 2 3 4 5
Other factors? Please specify and evaluate.
1 2 3 4 5
Home and host country-Specific Factors
Similarity of overseas market (cultural/religious)
1 2 3 4 5
Trade relationship between two countries
1 2 3 4 5
Diplomatic relationship between two countries
1 2 3 4 5
Other factors? Please specify and evaluate.
1 2 3 4 5
Other factors? Please specify and evaluate.
1 2 3 4 5
Industry-Specific Factors
Market size growth
1 2 3 4 5
Market barriers
1 2 3 4 5
Intensity of competition
1 2 3 4 5
Other factors? Please specify and evaluate.
1 2 3 4 5
Other factors? Please specify and evaluate.
1 2 3 4 5
Firm-Specific Factors
Knowledge protection
1 2 3 4 5
Host country experience
1 2 3 4 5
Company strategic orientation/objectives
1 2 3 4 5
Superior management & organization
1 2 3 4 5
Financing capacity
1 2 3 4 5
Company size/resources
1 2 3 4 5
Management risk attitude
1 2 3 4 5
Profit targets
1 2 3 4 5
Other factors? Please specify and evaluate.
1 2 3 4 5
Other factors? Please specify and evaluate.
1 2 3 4 5
262
P1
P2
P3
P4
P5
P6
P7
P8
P9
Project-Specific Factors (regarding initial project(s))
Size of projects
1 2 3
Type of projects (e.g., building, manufacturing)
1 2 3
Technical complexity of projects
1 2 3
Type of client (public vs private)
1 2 3
Availability of funds for projects
1 2 3
Contract types (e.g., lump sum, cost-plus)
1 2 3
Experience of company in similar works
1 2 3
Existence of strict time limitations
1 2 3
Existence of strict quality requirements
1 2 3
Other factors? Please specify and evaluate.
1 2 3
Other factors? Please specify and evaluate.
1 2 3
4
4
4
4
4
4
4
4
4
4
4
5
5
5
5
5
5
5
5
5
5
5
SECTION V: COMMENTS
Do you have any comments regarding this research?
Would you like to be interviewed regarding this research?
Do you want a copy of this survey result?
O Yes O No
O Yes O No
Do you want a copy of the report based on the entire research?
O Yes O No
263
Appendix P
How the Top International Contractors Shared the Global Market (Partial)
264
MIDDLE EAST
AMERICAN
CANADIAN
JAPANESE
CHINESE
KOREAN
ALL OTHERS
EUROPEAN
BRITISH
GERMAN
FRENCH
ITALIAN
DUTCH
OTHER
ALL FIRMS
1.351
0.0472
0.4259
0.808
0.855
0.7758
4.2758
688.2
115
946.5
1358.2
58.1
1109.8
8.5387
ASIA
3.3063
0.0235
5.6029
3.8455
1.3887
1.401
6.4105
1445.6
1844.6
1559.2
288.7
221.5
1050.8
21.9784
AFRICA
2.3624
0
0.4566
0.6541
0.372
0.8632
4.111
234
787.4
1842.6
590.3
16.3
651
8.8193
EUROPE
5.5594
0.0013
0.3612
0.378
0.0302
0.4681
21.4507
1975.3
3469.9
7545.4
580.8
871.5
7007.8
28.2489
U.S.
NA
0.0914
1.4561
0.1182
0
0.0827
19.9525
4211.5
6744.2
2005
146.7
5
6840.1
21.7009
CANADA
5.1523
NA
0.0099
0.0053
0
0
1.3795
129.5
340
496
4.7
5.4
403.8
6.547
LATIN
AMERICA
4.0436
0
0.3553
0.1383
0.503
0.4848
5.1025
100.3
198.2
781
1075.3
98.5
2849.1
10.6275
265
Appendix Q
Contractors Investigated for Entry Mode Selection
266
Number
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
Firm name
Shimizu
Kumagai Gumi
Kajima
Taisei
Obayashi
Ando
Hazama
Konoike
Maeda
Nishimatsu
Penta-Ocean
Nissan Rinkai
Sato Kigyo
Takenaka
Toa
Toda
Toyo
Aoki
Fujita
Mitsui
Sumitomo
Takenaka
JGC
Chiyoda
Kinden
Hyundai
LG
POSCO
Halla
Samsung
Daewoo
Ssangyong
Daewoo Engineering
Jurong Engineering
IPCO
CSCEC
China Harbour
China Railway
Shanghai
CPECC
Road & Bridge
Sinohydro
CWE
Beijing
CMEC
Wuyi
Railway construction
CETIC
Chengda
CTCI
Home country
Japan
Japan
Japan
Japan
Japan
Japan
Japan
Japan
Japan
Japan
Japan
Japan
Japan
Japan
Japan
Japan
Japan
Japan
Japan
Japan
Japan
Japan
Japan
Japan
Japan
Korea, South
Korea, South
Korea, South
Korea, South
Korea, South
Korea, South
Korea, South
Korea, South
Singapore
Singapore
China
China
China
China
China
China
China
China
China
China
China
China
China
China
Taiwan
267
Number
51
52
53
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
70
71
72
73
74
75
76
77
78
79
80
81
82
83
84
85
86
87
88
89
90
91
92
93
94
95
96
97
98
99
100
Firm name
RESA
McConnell Dowell
Leighton
Clough
HOCHTIEF
TECHNIP
Bilfinger Berger
Amec PLC
Bovid Lend Lease
Ferrovial
Snampgrotti
Consolidated Contractors
Construtora Norberto Odebrecht SA
Balfour Beatty
Joannou Paraskevaides
Impregilo S.p.A.
Obrascon Huarte Lain
Grinaker-Lta
Astaldi SPA
Besix
Enka
Tecnicas Reunidas SA
Necso Entrecanales Cubiertas
TRACTEBEL ENGINEERING
Enelpower
GAMA
Zublin
E. Pihl & Son
Arabian Construciton
National Petroleum Construction
Rizzani De Eccher SPA
Arab Contractors
SADE - CGTH
Tefken
C.M.C. Di
Kandenko
Kaikisha
Hanjin
SKEC
Daelim Industrial
Skanska
Bechtel
KBR
Fluor Daniel
Foster Wheeler
Jacobs
ABB Lummus Global
Shaw Group (Stone and Webster)
Parsons
Washington Group International
Home country
Taiwan
Australia
Australia
Australia
Germany
France
Germany
UK
UK
Spain
Italy
Greece
Brazil
UK
UK
Italy
Spain
South Africa
Italy
Belgium
Turkey
Spain
Spain
Belgium
Italy
Turkey
Germany
Denmark
Lebanon
UAE
Italy
Egypt
France
Turkey
Italy
Japan
Japan
Korea, south
Korea, south
Korea, south
Sweden
USA
USA
USA
USA
USA
USA
USA
USA
USA
268
Number
101
102
103
104
105
106
107
108
109
110
111
112
113
114
115
116
117
118
119
120
121
122
Firm name
Black & Veatch
Veco
Turner International
BE&K
Chicago Bridge & Iron
Earth Tech
Structure Tone
Walbridge Aldinger
Vinci
Sandwell
SNC-Lavalin
UMA
B.L. Harbert International LLC
Mott MacDonald
Corrpro Cos. Inc.
Austin
Stellar
ARB
Contrack
Holder
Heerema Fabrication
Salini
Home country
USA
USA
USA
USA
USA
USA
USA
USA
France
Canada
Canada
Canada
USA
USA
USA
USA
USA
USA
USA
USA
Netherlands
Italy
269
Appendix R
Legal and Technical Constraints against Market Entry
270
Market
Market access
National treatment
Technical barriers to trade (TBT)
Korea
WFO, JV, and BO are all allowed since 1996
None since 1996
As other services
Management and technical staff are
allowed to enter temporarily
Commercial
presence
Move of
national
persons
Permit system (e.g., multiple types; 5 year term);
Constraints on project sizes (according to permit type),
local subcontracting (e.g., for over 1 billion $ project, 20%
local subcontracting)/mandated project JV (e.g., for over
10 billion $ project, must venture with local contractors);
policy measures to reduce chances to take part in public
projects (e.g., articles in aligning project size); BO and
RO are not bounded by registration capital, for WFO, the
capital should be at 50 million $).
China
Commercial
presence
Move of
national
persons
Malaysia
Commercial
presence
Move of
national
persons
Thailand
Commercial
presence
BO is not allowed; acquisition is allowed. WFO
business scope constraint (e.g. projects funded
totally by foreign investments, foreign grants or
foreign investments and grants); In JV, foreign
contributor should be over 25%. RO is allowed;
direct bidding of foreign company is not allowed
since 2002.
Unbound (foreign company cannot directly
perform projects since 2002; registration
capital is the same as local firms)
None
None
Only through a representative office, regional office;
Malaysian-controlled corporation acting as an
agent; In general, JV with aboriginals holds at least
30% equity.
None
Work permit for managers and engineers is
required.
Work permit for managers and engineers is
required.
a) Foreign equity participation must not exceed 49
per cent of the registered capital; and
b) The number of foreign shareholders must be less
than half of the total number of shareholders of the
company concerned.
No limitations as long as foreign equity
participation does not exceed 49 per cent
Approval certificate system; Qualification certificate
system; Capital contribution (e.g. of the Chinese party
shall not be less than 25%); JV registration capital is still
high (e.g., 6 million US$ for class 1 JV); Only local track
record is accounted in assessing qualification.
Approval certificate system; Qualification certificate
system (e.g., WFO cannot get class A certificate,
therefore cannot bid for public projects over 10 million
RM);
Labor import restriction; Expatriate number restriction
(e.g., with one expatriate, 4 local labors must be
employed for firms with registration capital over 100
million Thailand $, but 5 for those with registration capital
less than 100 million Thailand $.)
271
a) A natural person who stays in Thailand for not
more than 90 days for the purpose of participating in
business meetings or contacts, entering into
contract to sell or purchase services, visiting of
business establishments or other similar
activities;b) A corporate transferee of the
managerial or executive level or a specialist,
provided that such person has been employed by
the company concerned outside Thailand for a
period of not less than one year immediately
preceding the date of his or her application for
admission and has satisfied the criteria for
management needs#1 stipulated by the Department
of Employment. Temporary entry is limited to a
one year period and may be extended for a further
two terms of not more than one year each.
None
Commercial
presence
Unbound
Unbound in general
Move of
national
persons
Unbound in general
Unbound in general
Commercial
presence
None (WFO, branch, and RO are all allowed)
None
Move of
national
persons
Unbound except intro-corporate transferees
Unbound
Move of
national
persons
Japan
Permit system; Must register as a local legal entity
company; Executive qualification requirement;
Employment of at least 1 local manager; Qualification
certificate system; Professional certificate system;
Volume requirement of public projects open to foreign
participation; JV is a practical norm; No labor
immigration; Only WTO nationality can enter; Traditional
practices; Strict constraint on construction materials
import. Registration capital requirement (e.g. at least 30
million Yen).
Singapore
Qualification certificate system where foreign company
when locally register, can only get certificate G1 and F1,
for above certificates, their home legal systems must be
recognized by Singapore; licensing for special sectors
like power and telecommunication; Engineering's
licensing system (certain ratio of employees have
degrees from universities recognized by Singapore);
Foreign labor employment quota (5:1 foreign: local);
Bidding advantage for ASEA member countries in public
projects.
272
Hong Kong
Commercial
presence
None (WFO, JV, BO, RO, and foreign company are
all allowed)
None
Move of
national
persons
Detailed requirement
None
Certain ratio of local management/technique employees
with recognized degree and local experience; foreign
firms cannot bid for projects over 50 million HK$ public
projects; Must be among a firm list to be qualified to bid
for public projects; Normal registration capital
requirement, but no check is needed; Registration &
office are needed, but the foreign company can still be a
foreign one (overseas company).
Vietnam
Commercial
presence
Local participation or subcontracting is needed for public
projects; Foreign contributing in EJV must be at least
20%; Registration capital cannot be reduced through
operation; Local employment should be priotized;
contract based business is allowed.
None (WFO, JV, BO, RO, and foreign company are
all allowed)
Move of
national
persons
Philippines
Commercial
presence
WFO and JV subsidiary and BO are allowed. In
Activities Expressly Reserved by Law to Citizens of
the Philippines (i.e., foreign equity is limited to a
minority share):The participation of foreign investors
in the governing body of any corporation engaged in
activities expressly reserved to citizens of the
Philippines by law shall be limited to the
proportionate share of foreign capital of such
entities. All executive and managing officers must
be citizens of the Philippines. Acquisition of Land:
All lands of the public domain are owned by the
State. Only citizens of the Philippines or
corporations or associations at least 60 per cent of
whose capital is owned by such citizens may own
land other than public lands and acquire public
lands through lease. Foreign investors may lease
only private-owned lands.
Access to Domestic Credit: A foreign firm,
engaged in non-manufacturing activities
availing it of peso borrowings, shall
observe, at the time of borrowing, the
prescribed 50:50 debt-to-equity ratio.
Foreign firms covered are: a) partnerships,
more than 40 per cent of whose capital is
owned by non-Filipino citizens; and b)
corporations, more than 40 per cent of
whose total subscribed capital stock is
owned by non-Filipino citizens.
Local registration is needed; Minimum registration capital
requirement, which cannot be reduced during project;
Special permit (project/consortium/company based)
requirement; Guarantees from parent company for a
subsidiary; Permit system; Requirement of maximum
number of expatriates (e.g., 25% for pubic projects);
273
Move of
national
persons
Entry and Temporary Stay of Natural Persons
Supplying Services: Non-resident aliens may be
admitted to the Philippines for the supply of a
service after a determination of the non-availability
of a person in the Philippines who is competent,
able and willing, at the time of application, to
perform the services for which the alien is
desired.#1
Indonesia
Commercial
presence
Move of
national
persons
Commercial Presence of the foreign service
provider(s) may be in the form of joint venture
and/or representative office, unless mentioned
otherwise. Joint venture should meet the following
requirements: i) should be in the form of Limited
Liability Enterprise (Perseroan Terbatas/PT), ii)
not more than 49% of the capital share of the
Limited Liability Enterprise (Perseroan
Terbatas/PT), may be owned by foreign
partner(s).a) Joint operation (kind of JV project): To
form a joint operation by establishing a
representative office; b) Joint venture: to establish a
joint venture company by fulfilling the requirements
as specified in the Horizontal Measures and the
Foreign Capital Investment Law.
a) Joint operation: 1. Registration fee
requirement 2. License for representative
office shall be valid for 3 years and can be
extended 3. Registered foreign company
shall form a joint operation with local
partner(s) which is (are) member(s) of the
Indonesian Contractors Association having
qualification A. b) Joint venture: Local
partner(s) in joint venture shall be
member(s) of the Indonesian Contractors
Association and having qualification A
Subject to Indonesian Labor and Immigration Laws
and Regulations, only directors, managers and
technical experts/advisors, unless mentioned
otherwise, are allowed with a maximum stay of two
years subject to one year extension. Manager and
technical experts (intra corporate transfer) are
allowed based on an economic needs test.
Expatriate Charges: Any foreign natural
persons supplying services are subject to
charges levied by National, Provincial and
Municipal Governments. Labor Laws and
Regulations. Any expatriate employed by
a joint-venture enterprise, representatives
office, and/or other types of juridical person
and/or an individual services provider must
hold a valid working permit issued by the
Ministry of Manpower. Immigration Laws
and Regulations. Any expatriate must
meet immigration requirements and
procedures to enter the territory of the
Republic of Indonesia.
274
India
Commercial
presence
Move of
national
persons
Australia
Only through incorporation with a foreign equity
ceiling of 51 per cent
None
Some constraints (stay period) on intra-corporate
transferees, professionals.
None
None
None
Some constraint
Some constraint
Commercial
presence
None
None
Move of
national
persons
Some constraints
None
Commercial
presence
Move of
national
persons
USA
N/A
N/A
When parent company directly bid for local projects (this
however is now preferred, registration is required; Local
experience is preferred; some restriction for foreign
contractor in public projects; Some loss of profit when
transferred out of the US; Bonding/Insurance rating is
restricted for lack of local experience; Labor immigration
is strictly constrained.
Canada
Commercial
presence
None
Move of
national
persons
Some constraints (e.g. Unbound, except as
indicated in the horizontal section.
In addition, an
in-state office must be maintained by all contractors
in Michigan.)
None
Foreign investment up to 49 per cent of the
registered capital of enterprises (though WFO is in
fact allowed)
None
Unbound except some cases
Unbound except some cases
Mexico
Commercial
presence
Move of
national
persons
Brazil
Firms from economic cooperation countries are allowed
in public projects; Registration as local company is
necessary; BOT projects are few; Qualification
acknowledge by government owned enterprises in power
and petroleum.
275
Commercial
presence
None 5 yrs after WTO entrance
None
Move of
national
persons
Unbound except some cases
Unbound except some cases
Not Specified (nearly none; seems negotiable)
Not specified (some constraints)
Some constraints
Some constraints
None
None
Unbound except for some cases (qualified
managers, executives, specialists)
Unbound except for some cases (qualified
managers, executives, specialists)
Only 12% of profits can be remitted out of Brazil, and
extra will be taxed; Enterprise representative need
permanent residence visa; Number and salary sum of
expatriates cannot be over 1/3 of those of all employees;
Import/Export permit for all goods/products; Foreign
currency administration;
Chile
Commercial
presence
Move of
national
persons
Argentina
Commercial
presence
Move of
national
persons
Peru
Commercial
presence
Move of
national
persons
Venezuela
Commercial
presence
Move of
national
persons
Poland
Commercial
presence
Move of
national
persons
Russia
Commercial
presence
Capital can be taken out one year after entry;
Nearly none (BO, subsidiary are allowed)
None
None
Unbound except for some cases (qualified
managers, executives, specialists)
Unbound except for some cases (qualified
managers, executives, specialists)
None
None
Unbound except some cases
Unbound except some cases
SV, JV, BO, RO, and direct bidding are all allowed
None
In public projects, at least 30% must be done by local
contractors when a foreign firm acts as GC.
276
Move of
national
persons
Romania
Labor immigration constraint.
Commercial
presence
None
None
Move of
national
persons
Unbound, except for the entry and temporary stay in
Romania of natural persons serving in management
and expert jobs#2 necessary to operate the foreign
investment
Unbound, except for the entry and
temporary stay in Romania of natural
persons serving in management and expert
jobs#3 necessary to operate the foreign
investment
Unbound (in fact, quite open)
Unbound
Czech
Commercial
presence
Move of
national
persons
Finland
Unbound with exceptions
Unbound with exceptions
Local firms enjoy a 10% discount when bidding against
foreign firms; acquisition is encourages.
277
Commercial
presence
None. Acquisition of shares by foreign owners
giving more than one third of the voting rights of a
major Finnish company or a major business
undertaking (with more than 1000 employees or
with a turnover exceeding 1000 million Finnish
market or with a balance sheet total exceeding
1000 million Finnish market) is subject to
confirmation by the Finnish authorities;
the
confirmation may be denied only if an important
national interest would be jeopardized. At least half
of the ordinary and deputy members of the Board of
Directors have to be citizens of Finland and resident
in Finland. The Managing Director of a limited
company has to be a Finnish citizen and resident in
Finland. Company exemptions may, however, be
granted.
None. A foreigner carrying on a trade as a
private entrepreneur or as a partner in a
Finnish limited or general partnership
needs a trade permit and has to be
permanently resident in Finland. If a
foreign organization intends to carry on a
business or trade by establishing a branch
in Finland, a trade permit is required. A
permission to act as a founder of a limited
company is required of a foreign
organization or a private person, who is not
a citizen of Finland. Treatment accorded to
subsidiaries of third-country companies
formed in accordance with the law of an
EEA Member State and having their
registered office, central administration or
principal place of business within an EEA
Member State may not be extended to
branches of agencies established in a EEA
Member State by a third-country company.
Treatment less favorable may be accorded
to subsidiaries of third-country companies
formed in accordance with the law of an
EEA Member State and having only their
registered office in the territory of an EEA
Member State unless they show that they
possess an effective and continuous link
with the economy of one of the EEA
Member States. Acquisition and
Possession of Real Estate Non-residents
need a permit to acquire or rent real estate
for more than two years intended for
leisure-time dwelling or for recreational
purposes. Åland Islands Restrictions on the
right for natural persons who do not enjoy
regional citizenship in Åland, and for legal
persons, to acquire and hold real property
on the Åland Islands without permission by
the competent authorities of the islands.
Restrictions on the right of establishment
and the right to provide services by natural
persons who do not enjoy regional
citizenship in Åland, or by any legal person,
without permission by the competent
authorities of the Åland Islands.
278
Move of
national
persons
Germany
Commercial
presence
Move of
national
persons
United
Kingdom
Commercial
presence
Move of
national
persons
Netherlands
Commercial
presence
Move of
national
persons
France
Constraints with exceptions
Constraints with exceptions
In all EC Member States services considered as
public utilities at a national or local level may be
subject to public monopolies or to exclusive rights
granted to private operators.
Favorable conditions with EU community.
Purchase of real estate by foreigners in the
Länder Berlin, Schleswig-Holstein and
Saarland may be subject to authorization.
After 1994 it is very likely that only Land
Berlin will continue to require such
authorization.
Unbound with exceptions
None
In all EC Member States services considered as
public utilities at a national or local level may be
subject to public monopolies or to exclusive rights
granted to private operators.
Favorable conditions with EU community.
Purchase of real estate by foreigners in the
Länder Berlin, Schleswig-Holstein and
Saarland may be subject to authorization.
After 1994 it is very likely that only Land
Berlin will continue to require such
authorization.
Unbound with exceptions
None
In all EC Member States services considered as
public utilities at a national or local level may be
subject to public monopolies or to exclusive rights
granted to private operators.
Favorable conditions with EU community.
Purchase of real estate by foreigners in the
Länder Berlin, Schleswig-Holstein and
Saarland may be subject to authorization.
After 1994 it is very likely that only Land
Berlin will continue to require such
authorization.
Unbound with exceptions
None
Approval (government agencies and Handwork Union)
and registration (EU members and other European
countries with bilateral trade agreements with Germany
are excluded) required; Craft licensing system; Work
permit; Labor immigration constraints (only 12 preunion
countries are allowed to export labor to Germany).
279
Commercial
presence
In all EC Member States services considered as
public utilities at a national or local level may be
subject to public monopolies or to exclusive rights
granted to private operators. Foreign purchases
exceeding 33,33 per cent of the shares of capital or
voting rights in existing French enterprise, or 20 per
cent in publicly quoted French companies, are
subject to the following regulations: - Investments
of less than 50 million FF in French enterprises with
a turnover not exceeding 500 million FF are free,
after a delay of 15 days following prior notification
and verification that these amounts are met; -after a
period of one month following prior notification,
authorization is tacitly granted for other investments
unless the Minister of Economic Affairs has, in
exceptional circumstances, exercised its right to
postpone the investment. Foreign participation in
newly privatized companies may be limited to a
variable amount, determined by the government of
France on a case by case basis, of the equity
offered to the public. For establishing in certain#4
commercial, industrial or artisanal activities, a
specific authorization is needed if the managing
director is not holder of a permanent residence
permit.
Favorable conditions with EU community.
Purchase of real estate by foreigners in the
Länder Berlin, Schleswig-Holstein and
Saarland may be subject to authorization.
After 1994 it is very likely that only Land
Berlin will continue to require such
authorization.
Move of
national
persons
Unbound with exceptions
None
Market access
National treatment
In all EC Member States services considered as
public utilities at a national or local level may be
subject to public monopolies or to exclusive rights
granted to private operators. Investment in Spain by
foreign government and foreign public entities
(which tends to imply, besides economic, also
non-economic interests to entity’s part), directly or
through companies or other entities controlled
directly or indirectly by foreign governments, need
prior authorization by the government.
Favorable conditions with EU community.
Purchase of real estate by foreigners in the
Länder Berlin, Schleswig-Holstein and
Saarland may be subject to authorization.
After 1994 it is very likely that only Land
Berlin will continue to require such
authorization.
Spain
Commercial
presence
Technical barriers to trade (TBT)
280
Move of
national
persons
Belgium
Commercial
presence
Move of
national
persons
Israel
Commercial
presence
Move of
national
persons
Oman
Commercial
presence
Move of
national
persons
Pakistan
Unbound with exceptions
None
In all EC Member States services considered as
public utilities at a national or local level may be
subject to public monopolies or to exclusive rights
granted to private operators.
Favorable conditions with EU community.
Purchase of real estate by foreigners in the
Länder Berlin, Schleswig-Holstein and
Saarland may be subject to authorization.
After 1994 it is very likely that only Land
Berlin will continue to require such
authorization.
Unbound with exceptions
None
Enactment also requires a foreign company that
maintains in Israel a place of business or an office
for registration or transfer of shares to register as a
foreign company and pay the requisite fees. The
Partnership Ordinance (New Version), 5735-1975
provides that a foreign partnership, i.e. one formed
outside Israel, may only carry on business in Israel
if it is registered in the Israel register partnerships.
In the case of a limited partnership, registration has
to be sanctioned by the Minister of Justice who at
his discretion may authorize or refuse registration.
Unbound except for executives and managers
Medium
RO, BO (only for public projects and special private
projects), and JV (up to 70% equity) are all allowed.
Direct bidding is allowed for public international
projects (but registration as a BO or JV is a must
upon receiving the project).
Project permits system (Urban planning and social
economy permit, environmental permit); Registration
system; Qualification/grading system (8 grades).
In fact entry is very difficult.
Unbound except for executives and
managers
Open
At 15% local employment ratio;
281
Commercial
presence
Except in the case of representative offices where
specifically provided for in this Schedule,
commitments under 'commercial presence' are
subject to incorporation in Pakistan with maximum
foreign equity participation of fifty one per cent
unless a different percentage is inscribed against a
particular sector or subsector.
Acquisition of real estate by non-Pakistani
entities and/or persons is subject to
authorization on a case-by-case basis
keeping into account the purpose and
location of the undertaking.
Move of
national
persons
Unbound, except for measures concerning the entry
or temporary stay of natural persons up to a
maximum of fifty per cent in superior categories
(namely, Executives and Specialists) in an
undertaking.
Unbound
Saudi Arabia
Commercial
presence
SV and JV (since 2000), BO, RO, and direct
bidding/business with local agency (still very
popular) are all allowed.
High registration capital according to business scope and
project size; Qualification/grading system; 10-15% local
employment ratio;
Move of
national
persons
U.A.E.
Commercial
presence
Move of
national
persons
Kuwait
Commercial presence will be through either (i) a
representative office or (ii) an incorporation as a
company with maximum foreign equity participation
of 49% subject to UAE law.
Unbound except some cases (managers,
executives, etc.)
(i) Acquisition of land and real estate is
not permitted to foreigners or to companies
in which foreign nationals have a share
holding. (ii) Foreign nationals or
companies with foreign share holdings may
be required to pay direct taxes on income
derived from work or operations in the UAE,
whereas local services suppliers or local
UAE companies may not be required to pay
similar taxes keeping in view the provisions
of paragraph (d) of Article XIV. (iii)
Government subsidized services may only
be extended to UAE nationals. JV
company has all advantages of a pure local
company.
Foreign company (foreign nationality, not locally
registered) can only bid for public international projects;
local projects are for locally registered companies;
qualification/grading system; Requirement of higher
bonding for foreign companies; Equipment must be
locally acquired/rented if available; No advancements for
foreign companies (i.e. BO) except for JV project; Local
registration to get licensing (BO needs agency to get it).
282
Commercial
presence
Move of
national
persons
Turkey
Foreign commercial presence should be either
through a Kuwaiti Agent working in the same field of
services or related to it (official agency contract
must be registered with the Ministry of Commerce
and Industry). Or: through a partnership with the
capital of Kuwaiti Company, in which Kuwaiti portion
should be 51% at least, and the aggregate portion
of foreign capital should not exceed 49%; Employ
30% of his workforce with Nationals. Commercial
presence shall need prior written permission from
competent authorities, and shall be subject to
economic needs test and some other
considerations.
None
Unbound except for measures concerning the entry
and temporary stay of natural persons falling within
the following categories: - Managers - Specialists
and - Skilled technicians. Presence of foreign
natural persons as self employers is not allowed.
Unbound except for measures concerning
the categories of natural persons referred
to in the market access column Housing
and social programs and some aspects of
free health care are limited to Kuwaiti
citizens.
Direct business with local agent can only take part in
public international projects; Qualification/grading system
for local companies including foreign-Kuwait JV;
283
Commercial
presence
Move of
national
persons
Egypt
Commercial
presence
Move of
national
persons
Ghana
Commercial
presence
For Construction Services, establishing ordinary
partnership under Civil Code (whichis not a legal
entity) excluding the ordinary partnership formed for
international tenders in Turkey by the non-residents
is subject to permission of the Ministry to which the
Undersecretariat of Treasury and Foreign Trade
(UTFT) is attached.All investment to be made within
the range of $50,000 and $150,000,000 by nonresidents (natural or juridical persons) through: 1)
the establishment of incorporated or limited liability
companies; 2) the purchase of shares 3) the
opening of branches; 4) the creation of liaison
offices, will be authorized by the General
Directorate of Foreign Capital provided that such
activities are beneficial to the economic
development of Turkey, are in the areas open to the
Turkish private sector and do not entail a monopoly
or special privilege. Foreign investment above
$150 million requires the approval of the Council of
Ministers. A new Decree removing this limitation is
under preparation. The capital must be brought in
as foreign exchange. Authorization is required for
the investments by established foreign-owned
enterprises or joint ventures in a new line of
business and for participation or takeover of existing
enterprises. For the investments in the same line
of business, proposals are generally approved as a
matter of course.
None
None
None
Medium
Open
Commercial presence is only allowed for
joint-venture companies; Foreign capital equity shall
not exceed 49 per cent of the total capital required
for the project; direct bidding with local agency is
allowed.
None
None
None
None
None
Medium
Local contractors enjoy 15% discount in public projects;
Number of expatriates cannot exceed 10% of total
employee quantity;
Foreign-owned enterprises including joint-venture
enterprises with Ghanaians must satisfy minimum capital
284
Automatic entry and work permit is granted to up to
4 expatriate senior executives and specialized skill
personnel in accordance with relevant provisions in
the Investment Promotion Law. Approval is
required for any additional expatriate workers
beyond the automatic level. Enterprises must also
provide for training in higher skills for Ghanaians to
enable them to assume specialized roles.
None
Commercial
presence
None
None
Move of
national
persons
Unbound, except for measures concerning entry
and temporary stay of personnel employed in senior
management and experts jobs for the
implementation of foreign investment. Their
employment shall be agreed upon by the service
providers and approved by the IDCC#1.
Unbound, except for measures concerning
entry and temporary stay of personnel
employed in senior management and
experts jobs for the implementation of
foreign investment. Their employment shall
be agreed upon by the service providers
and approved by the IDCC#1.
Commercial
presence
None
Local borrowing by South African registered
companies with a non-resident
shareholding of 25 per cent or more is
limited
Move of
national
persons
Unbound with exceptions
Unbound with exceptions
Move of
national
persons
Nigeria
South Africa
outlay and foreign equity requirements as follows: wholly
foreign-owned company requires a minimum equity
capital outlay of US$ 200,000. Joint-venture company
should have a minimum foreign equity capital of at least
US$ 10,000 in cash or kind. Agency establishment
must have authority to negotiate and conclude contracts
on behalf of foreign parent companies.
285
Appendix S
Cultural Distances between Selected Markets
286
Arab World**
Argentina
Australia
Austria
Belgium
Brazil
Canada
Chile
China*
Colombia
Costa Rica
Czech
Denmark
Russia & Romania
Ecuador
El Salvador
Finland
France
Germany
Greece
Guatemala
HK
Hungary*
India
Indonesia
Iran
Ireland
Israel
Italy
Vietnam
Japan
Malaysia
Mexico
Netherlands
New Zealand
Norway
Pakistan
Panama
Peru
Philippines
Poland*
Portugal
Singapore
South Africa
Korea, South
Spain
Sweden
Switzerland
Taiwan
Thailand
Turkey
UK
USA
Uruguay
Venezuela
West Africa
Arab WoArgentinaAustralia Austria Belgium Brazil
Canada Chile
China* ColombiaCosta Ri Czech Denmark
0.00
0.58
2.53
2.45
0.96
1.87
1.85
0.60
6.45
0.46
1.62
0.42
3.58
0.58
0.00
1.83
0.98
0.49
2.05
1.37
0.64
7.52
0.64
1.01
0.15
3.10
2.53
1.83
0.00
1.48
1.66
2.42
0.11
3.59
6.16
3.68
3.98
1.26
1.84
2.45
0.98
1.48
0.00
1.91
3.73
1.33
2.79
8.88
2.21
2.45
1.11
2.79
0.96
0.49
1.66
1.91
0.00
2.52
1.42
1.46
8.56
1.75
2.39
0.32
3.68
1.87
2.05
2.42
3.73
2.52
0.00
2.21
2.13
2.05
2.16
2.88
2.05
5.09
1.85
1.37
0.11
1.33
1.42
2.21
0.00
2.70
6.17
2.95
3.04
0.86
1.24
0.60
0.64
3.59
2.79
1.46
2.13
2.70
0.00
7.53
0.61
0.38
0.95
3.70
6.45
7.52
6.16
8.88
8.56
2.05
6.17
7.53
0.00
6.66
8.51
7.25
9.94
0.46
0.64
3.68
2.21
1.75
2.16
2.95
0.61
6.66
0.00
1.23
0.94
4.94
1.62
1.01
3.98
2.45
2.39
2.88
3.04
0.38
8.51
1.23
0.00
1.60
3.29
0.42
0.15
1.26
1.11
0.32
2.05
0.86
0.95
7.25
0.94
1.60
0.00
2.56
3.58
3.10
1.84
2.79
3.68
5.09
1.24
3.70
9.94
4.94
3.29
2.56
0.00
0.45
0.16
1.56
1.35
0.18
2.07
1.21
1.00
7.48
0.91
1.80
0.06
3.32
0.43
1.14
4.11
2.95
2.31
2.32
3.27
0.86
6.27
0.13
1.70
1.28
5.12
0.58
0.57
3.89
2.72
1.41
2.12
3.06
0.10
7.50
0.34
0.59
0.97
4.63
1.52
0.92
1.26
1.47
1.34
2.95
0.70
1.37
8.44
2.35
1.30
0.76
0.74
0.69
0.49
1.65
2.14
0.09
2.31
1.26
1.08
8.17
1.63
1.99
0.27
3.05
1.71
0.91
0.32
0.79
1.23
1.51
0.31
2.36
5.26
2.17
2.59
0.71
2.35
1.00
0.39
3.51
2.14
0.83
2.40
3.01
0.71
8.39
0.68
1.27
0.84
5.45
1.08
1.82
6.17
5.16
2.54
2.83
5.15
0.69
8.00
0.85
1.76
2.23
7.23
4.69
5.62
4.22
6.57
6.75
1.44
4.06
5.64
0.36
5.08
6.33
5.27
6.70
1.24
0.48
1.68
0.61
0.87
2.79
1.55
2.09
7.85
1.18
2.64
0.49
4.15
1.96
2.80
1.90
4.04
3.18
0.65
1.69
3.15
1.75
2.84
4.20
2.28
4.13
0.43
1.44
3.70
3.28
2.57
2.40
2.73
0.88
6.11
0.62
1.66
1.34
3.69
0.28
0.42
1.79
1.62
1.08
1.98
1.11
0.55
6.66
0.74
1.02
0.30
2.00
2.15
1.59
0.73
0.79
2.15
3.80
0.50
3.23
8.11
2.88
3.34
1.11
1.25
2.09
0.62
1.64
0.49
1.42
3.24
1.27
1.63
9.15
2.07
1.15
0.89
2.01
1.15
0.52
0.85
0.88
0.36
2.74
0.73
2.06
8.13
1.83
2.74
0.23
2.81
0.23
1.37
2.89
3.43
1.77
2.29
2.07
1.08
6.29
1.06
2.27
0.96
3.30
4.05
3.38
3.17
3.84
3.83
1.22
3.56
4.88
2.68
3.71
5.60
3.52
8.25
0.74
2.52
4.24
4.86
3.09
3.05
3.31
1.98
6.27
1.55
3.48
2.00
4.67
0.23
0.62
3.22
2.44
1.12
2.06
2.64
0.88
6.69
0.22
1.97
0.66
5.16
3.02
2.57
1.05
3.30
2.53
2.08
0.81
3.00
5.80
4.44
3.09
2.15
1.39
2.68
1.73
0.14
1.05
2.03
2.51
0.16
3.38
6.24
3.50
3.34
1.35
1.43
2.55
2.05
1.44
2.72
2.39
2.87
0.90
2.22
7.56
3.75
2.03
1.77
0.59
0.51
0.57
3.21
1.89
1.87
2.13
2.38
0.37
6.66
0.19
0.63
0.85
3.53
0.57
1.48
5.16
4.43
2.18
2.44
4.20
0.60
7.12
0.52
1.75
1.68
6.20
0.51
0.56
3.76
2.53
1.56
2.08
2.91
0.10
7.19
0.23
0.54
0.93
4.34
0.56
1.87
2.93
3.67
2.39
1.70
2.33
1.89
4.30
1.16
3.28
1.42
4.51
0.59
0.28
1.97
1.70
0.14
2.21
1.67
1.16
7.82
1.01
2.12
0.23
4.19
0.91
0.64
3.97
2.94
1.24
2.32
3.17
0.15
8.29
0.79
0.57
1.09
4.66
2.66
4.13
3.66
5.21
5.44
2.23
2.99
3.77
2.66
3.32
4.51
3.59
4.07
0.92
0.75
0.75
0.95
1.04
2.66
0.41
1.93
7.20
1.69
2.47
0.33
1.66
2.91
2.89
3.95
4.75
3.90
0.32
3.61
2.45
2.12
2.69
2.79
3.25
6.31
0.47
0.12
1.91
1.59
0.36
1.98
1.37
0.43
7.66
0.87
0.94
0.18
2.83
3.52
3.34
1.70
3.77
3.76
3.26
1.19
3.47
6.80
5.01
3.28
2.82
0.60
1.46
0.71
0.67
0.39
1.08
3.01
0.47
2.29
7.91
1.96
2.54
0.45
1.88
3.62
3.77
4.03
5.24
4.95
0.47
3.77
3.47
1.16
3.45
3.80
3.99
6.51
1.72
2.12
3.05
3.91
3.16
0.34
2.49
1.55
2.41
1.84
1.97
2.23
4.31
0.23
0.21
2.57
2.00
0.68
1.83
1.92
0.21
7.14
0.41
0.86
0.33
3.54
2.77
2.27
0.14
1.59
2.26
3.10
0.20
4.15
6.54
4.00
4.54
1.55
1.60
2.47
1.94
0.02
1.63
1.73
2.55
0.11
3.70
6.19
3.73
4.20
1.28
1.80
0.67
0.32
3.15
2.30
0.77
2.11
2.48
0.20
8.01
0.69
0.68
0.65
4.11
0.50
1.09
4.16
2.89
2.08
2.38
3.45
1.09
6.49
0.12
2.09
1.25
5.87
0.35
1.20
2.98
3.04
2.15
1.39
2.19
0.77
4.66
0.59
1.56
1.11
3.60
287
Russia &Ecuador El SalvadFinland France GermanyGreece GuatemaHK
Hungary*India
Indonesi Iran
Ireland
0.45
0.43
0.58
1.52
0.69
1.71
1.00
1.08
4.69
1.24
1.96
0.43
0.28
2.15
0.16
1.14
0.57
0.92
0.49
0.91
0.39
1.82
5.62
0.48
2.80
1.44
0.42
1.59
1.56
4.11
3.89
1.26
1.65
0.32
3.51
6.17
4.22
1.68
1.90
3.70
1.79
0.73
1.35
2.95
2.72
1.47
2.14
0.79
2.14
5.16
6.57
0.61
4.04
3.28
1.62
0.79
0.18
2.31
1.41
1.34
0.09
1.23
0.83
2.54
6.75
0.87
3.18
2.57
1.08
2.15
2.07
2.32
2.12
2.95
2.31
1.51
2.40
2.83
1.44
2.79
0.65
2.40
1.98
3.80
1.21
3.27
3.06
0.70
1.26
0.31
3.01
5.15
4.06
1.55
1.69
2.73
1.11
0.50
1.00
0.86
0.10
1.37
1.08
2.36
0.71
0.69
5.64
2.09
3.15
0.88
0.55
3.23
7.48
6.27
7.50
8.44
8.17
5.26
8.39
8.00
0.36
7.85
1.75
6.11
6.66
8.11
0.91
0.13
0.34
2.35
1.63
2.17
0.68
0.85
5.08
1.18
2.84
0.62
0.74
2.88
1.80
1.70
0.59
1.30
1.99
2.59
1.27
1.76
6.33
2.64
4.20
1.66
1.02
3.34
0.06
1.28
0.97
0.76
0.27
0.71
0.84
2.23
5.27
0.49
2.28
1.34
0.30
1.11
3.32
5.12
4.63
0.74
3.05
2.35
5.45
7.23
6.70
4.15
4.13
3.69
2.00
1.25
0.00
1.32
0.91
1.13
0.21
0.91
0.60
2.00
5.67
0.44
2.52
1.58
0.53
1.57
1.32
0.00
0.64
2.74
2.04
2.67
1.32
0.90
4.69
1.73
2.58
0.29
0.83
3.13
0.91
0.64
0.00
1.88
1.18
2.43
0.38
0.45
5.83
1.75
3.32
0.98
0.75
3.52
1.13
2.74
1.88
0.00
0.98
1.11
2.24
3.80
5.82
1.95
3.02
2.09
0.59
1.02
0.21
2.04
1.18
0.98
0.00
1.28
0.94
2.21
6.25
1.18
2.80
2.03
0.73
2.04
0.91
2.67
2.43
1.11
1.28
0.00
2.07
4.41
3.58
0.85
1.59
2.67
1.16
0.81
0.60
1.32
0.38
2.24
0.94
2.07
0.00
1.09
6.89
1.04
3.96
2.11
1.29
3.51
2.00
0.90
0.45
3.80
2.21
4.41
1.09
0.00
6.73
3.29
4.19
1.37
1.86
5.88
5.67
4.69
5.83
5.82
6.25
3.58
6.89
6.73
0.00
6.08
0.83
4.20
4.52
5.50
0.44
1.73
1.75
1.95
1.18
0.85
1.04
3.29
6.08
0.00
3.18
2.38
1.22
1.34
2.52
2.58
3.32
3.02
2.80
1.59
3.96
4.19
0.83
3.18
0.00
2.13
1.97
2.87
1.58
0.29
0.98
2.09
2.03
2.67
2.11
1.37
4.20
2.38
2.13
0.00
0.53
2.66
0.53
0.83
0.75
0.59
0.73
1.16
1.29
1.86
4.52
1.22
1.97
0.53
0.00
1.25
1.57
3.13
3.52
1.02
2.04
0.81
3.51
5.88
5.50
1.34
2.87
2.66
1.25
0.00
1.13
2.88
1.80
0.60
1.42
0.94
1.54
4.03
6.72
1.17
4.07
2.93
1.14
1.29
0.26
2.34
2.02
1.12
0.51
0.59
1.40
3.68
6.11
0.35
2.82
2.51
0.96
0.90
1.13
0.72
1.26
1.79
1.26
2.33
2.15
1.63
4.39
2.22
1.77
0.29
0.46
2.34
3.35
4.26
4.36
5.49
4.22
2.02
3.56
5.56
2.67
2.83
2.17
5.22
4.33
4.92
2.19
0.90
2.10
3.18
2.48
3.60
3.32
2.06
4.49
3.29
2.11
0.41
1.24
3.40
0.53
0.32
0.56
2.44
1.08
2.01
0.64
0.91
5.23
0.94
2.54
0.83
0.79
2.80
2.57
4.79
3.72
1.03
2.05
1.35
4.14
5.71
3.83
3.78
2.02
3.78
2.00
2.28
1.75
3.99
3.72
1.02
1.98
0.27
3.49
6.22
4.14
1.71
2.13
3.56
1.68
0.56
2.27
4.08
3.00
0.36
1.82
1.58
3.66
5.04
5.05
3.49
2.81
3.00
1.36
1.79
1.00
0.31
0.35
1.52
1.58
1.88
0.96
1.18
4.76
1.42
2.67
0.44
0.38
2.29
1.54
0.43
0.42
3.22
1.83
3.65
1.12
0.13
5.74
2.66
3.25
0.74
1.27
4.72
0.93
0.47
0.03
1.78
1.29
2.31
0.52
0.54
5.46
1.69
3.10
0.74
0.61
3.21
1.55
0.73
1.86
2.84
2.02
2.24
2.62
2.12
2.93
2.21
1.01
0.54
1.02
2.65
0.06
1.47
0.96
1.62
0.26
1.22
0.47
1.88
6.17
0.51
2.89
1.93
0.87
2.15
0.98
1.26
0.11
1.80
1.03
2.58
0.34
0.64
6.58
2.03
3.84
1.59
1.01
3.90
4.15
2.61
4.16
3.78
4.68
3.21
5.77
4.96
1.22
4.82
0.87
1.68
2.38
3.41
0.60
1.87
2.10
0.73
0.92
0.60
2.13
3.80
4.92
0.77
2.08
1.58
0.49
0.29
3.29
2.94
2.43
3.90
3.60
2.58
2.95
3.07
1.70
4.06
1.57
3.12
2.90
5.37
0.19
1.31
0.50
0.72
0.22
1.15
0.49
1.57
5.71
0.96
2.73
1.38
0.35
1.90
3.50
5.11
4.43
1.06
3.03
2.14
5.43
6.61
4.30
4.77
2.60
3.64
2.14
2.16
0.69
2.40
2.38
0.83
1.13
0.44
2.05
4.45
5.60
0.51
2.75
2.34
0.86
0.24
4.15
3.55
3.51
4.56
4.60
2.80
4.19
4.29
0.84
4.73
1.25
3.56
3.49
5.49
2.43
1.83
1.73
2.55
2.67
1.99
2.63
2.40
1.44
3.35
0.86
1.59
1.57
3.78
0.31
0.69
0.18
1.19
0.49
1.55
0.39
0.90
5.35
1.09
2.59
0.86
0.32
2.35
1.97
4.26
4.50
1.47
2.19
0.60
4.31
6.90
4.38
1.94
2.06
3.67
1.93
0.44
1.60
4.07
4.02
1.33
1.69
0.42
3.71
6.24
4.21
1.75
1.83
3.59
1.78
0.67
0.55
1.18
0.15
1.41
0.63
1.95
0.21
0.87
6.26
1.44
3.41
1.50
0.74
3.12
1.17
0.09
0.71
3.13
1.97
2.65
1.07
0.91
5.09
1.41
2.80
0.65
1.08
3.33
1.30
0.36
0.85
1.89
1.68
2.00
1.80
1.30
3.07
2.11
1.31
0.14
0.46
2.54
288
Israel
Italy
Vietnam Japan Malaysia Mexico Netherla New ZeaNorway Pakistan Panama Peru
PhilippinePoland*
2.09
1.15
0.23
4.05
0.74
0.23
3.02
2.68
2.55
0.51
0.57
0.51
0.56
0.59
0.62
0.52
1.37
3.38
2.52
0.62
2.57
1.73
2.05
0.57
1.48
0.56
1.87
0.28
1.64
0.85
2.89
3.17
4.24
3.22
1.05
0.14
1.44
3.21
5.16
3.76
2.93
1.97
0.49
0.88
3.43
3.84
4.86
2.44
3.30
1.05
2.72
1.89
4.43
2.53
3.67
1.70
1.42
0.36
1.77
3.83
3.09
1.12
2.53
2.03
2.39
1.87
2.18
1.56
2.39
0.14
3.24
2.74
2.29
1.22
3.05
2.06
2.08
2.51
2.87
2.13
2.44
2.08
1.70
2.21
1.27
0.73
2.07
3.56
3.31
2.64
0.81
0.16
0.90
2.38
4.20
2.91
2.33
1.67
1.63
2.06
1.08
4.88
1.98
0.88
3.00
3.38
2.22
0.37
0.60
0.10
1.89
1.16
9.15
8.13
6.29
2.68
6.27
6.69
5.80
6.24
7.56
6.66
7.12
7.19
4.30
7.82
2.07
1.83
1.06
3.71
1.55
0.22
4.44
3.50
3.75
0.19
0.52
0.23
1.16
1.01
1.15
2.74
2.27
5.60
3.48
1.97
3.09
3.34
2.03
0.63
1.75
0.54
3.28
2.12
0.89
0.23
0.96
3.52
2.00
0.66
2.15
1.35
1.77
0.85
1.68
0.93
1.42
0.23
2.01
2.81
3.30
8.25
4.67
5.16
1.39
1.43
0.59
3.53
6.20
4.34
4.51
4.19
1.13
0.26
1.13
3.35
2.19
0.53
2.57
1.75
2.27
1.00
1.54
0.93
1.55
0.06
2.88
2.34
0.72
4.26
0.90
0.32
4.79
3.99
4.08
0.31
0.43
0.47
0.73
1.47
1.80
2.02
1.26
4.36
2.10
0.56
3.72
3.72
3.00
0.35
0.42
0.03
1.86
0.96
0.60
1.12
1.79
5.49
3.18
2.44
1.03
1.02
0.36
1.52
3.22
1.78
2.84
1.62
1.42
0.51
1.26
4.22
2.48
1.08
2.05
1.98
1.82
1.58
1.83
1.29
2.02
0.26
0.94
0.59
2.33
2.02
3.60
2.01
1.35
0.27
1.58
1.88
3.65
2.31
2.24
1.22
1.54
1.40
2.15
3.56
3.32
0.64
4.14
3.49
3.66
0.96
1.12
0.52
2.62
0.47
4.03
3.68
1.63
5.56
2.06
0.91
5.71
6.22
5.04
1.18
0.13
0.54
2.12
1.88
6.72
6.11
4.39
2.67
4.49
5.23
3.83
4.14
5.05
4.76
5.74
5.46
2.93
6.17
1.17
0.35
2.22
2.83
3.29
0.94
3.78
1.71
3.49
1.42
2.66
1.69
2.21
0.51
4.07
2.82
1.77
2.17
2.11
2.54
2.02
2.13
2.81
2.67
3.25
3.10
1.01
2.89
2.93
2.51
0.29
5.22
0.41
0.83
3.78
3.56
3.00
0.44
0.74
0.74
0.54
1.93
1.14
0.96
0.46
4.33
1.24
0.79
2.00
1.68
1.36
0.38
1.27
0.61
1.02
0.87
1.29
0.90
2.34
4.92
3.40
2.80
2.28
0.56
1.79
2.29
4.72
3.21
2.65
2.15
0.00
1.02
3.02
4.47
4.70
2.41
2.16
1.16
1.45
1.48
3.64
1.74
3.84
1.48
1.02
0.00
1.86
3.48
3.11
1.32
2.42
1.06
2.23
1.82
2.98
2.00
2.21
0.40
3.02
1.86
0.00
5.17
0.23
0.80
3.07
3.09
2.56
0.94
0.91
1.09
0.36
1.42
4.47
3.48
5.17
0.00
6.12
3.45
4.57
3.31
5.92
4.20
5.05
4.33
3.72
3.28
4.70
3.11
0.23
6.12
0.00
1.28
4.57
4.51
4.04
1.57
1.20
1.85
0.32
2.50
2.41
1.32
0.80
3.45
1.28
0.00
4.30
3.38
3.88
0.61
0.51
0.52
0.85
0.51
2.16
2.42
3.07
4.57
4.57
4.30
0.00
1.02
0.33
3.46
5.05
3.66
3.66
3.10
1.16
1.06
3.09
3.31
4.51
3.38
1.02
0.00
1.18
2.84
5.26
3.53
3.21
2.26
1.45
2.23
2.56
5.92
4.04
3.88
0.33
1.18
0.00
2.61
4.42
2.89
3.60
2.89
1.48
1.82
0.94
4.20
1.57
0.61
3.46
2.84
2.61
0.00
0.80
0.19
1.30
1.27
3.64
2.98
0.91
5.05
1.20
0.51
5.05
5.26
4.42
0.80
0.00
0.42
1.26
1.51
1.74
2.00
1.09
4.33
1.85
0.52
3.66
3.53
2.89
0.19
0.42
0.00
1.63
1.05
3.84
2.21
0.36
3.72
0.32
0.85
3.66
3.21
3.60
1.30
1.26
1.63
0.00
1.79
1.48
0.40
1.42
3.28
2.50
0.51
3.10
2.26
2.89
1.27
1.51
1.05
1.79
0.00
1.70
2.09
1.71
4.69
2.82
0.96
3.50
3.83
2.81
0.74
0.75
0.23
2.55
0.98
5.30
4.65
1.90
4.81
1.70
3.54
3.43
3.51
3.55
2.77
3.78
3.68
1.24
4.83
1.14
0.36
1.15
4.09
2.07
1.43
1.99
0.78
1.59
1.37
2.86
1.91
1.48
0.98
3.90
4.30
3.48
1.71
4.29
3.01
2.94
3.74
3.66
2.54
2.93
2.39
2.88
3.45
0.84
0.67
1.11
3.93
2.28
0.75
2.12
1.92
1.63
0.72
1.29
0.54
1.84
0.31
2.61
3.31
3.16
6.53
4.45
5.15
0.38
1.42
0.26
3.65
5.74
4.21
3.98
4.30
0.72
0.26
2.00
3.84
3.19
1.79
2.23
0.59
1.83
1.65
3.57
2.21
2.32
1.05
4.70
4.98
3.97
1.67
4.61
3.81
3.15
3.79
4.09
3.22
3.92
3.36
3.02
4.43
3.11
3.34
1.87
2.48
2.46
2.15
2.09
2.85
2.39
1.50
2.02
1.59
1.57
2.75
1.32
1.06
0.79
3.88
1.69
0.36
2.77
2.57
2.22
0.38
0.64
0.19
1.36
0.41
2.04
1.12
2.90
3.95
4.07
3.57
1.47
0.23
1.71
3.44
5.67
4.26
2.90
2.51
1.86
0.88
2.73
3.40
3.98
3.21
1.14
0.21
1.51
3.27
5.16
3.86
2.75
2.03
1.30
1.43
1.48
4.17
2.62
0.73
3.04
3.08
2.45
0.66
0.85
0.25
2.23
0.57
3.00
2.14
0.99
3.82
1.21
0.16
5.26
4.16
4.68
0.53
0.48
0.59
0.86
1.20
2.64
2.17
0.31
3.87
0.58
0.71
2.93
2.91
2.54
0.44
0.71
0.65
0.37
1.60
289
Portugal SingaporSouth Af Korea, S Spain Sweden SwitzerlaTaiwan Thailand Turkey UK
USA
Uruguay Venezue West Afr
0.91
2.66
0.92
2.91
0.47
3.52
1.46
3.62
1.72
0.23
2.77
2.47
0.67
0.50
0.35
0.64
4.13
0.75
2.89
0.12
3.34
0.71
3.77
2.12
0.21
2.27
1.94
0.32
1.09
1.20
3.97
3.66
0.75
3.95
1.91
1.70
0.67
4.03
3.05
2.57
0.14
0.02
3.15
4.16
2.98
2.94
5.21
0.95
4.75
1.59
3.77
0.39
5.24
3.91
2.00
1.59
1.63
2.30
2.89
3.04
1.24
5.44
1.04
3.90
0.36
3.76
1.08
4.95
3.16
0.68
2.26
1.73
0.77
2.08
2.15
2.32
2.23
2.66
0.32
1.98
3.26
3.01
0.47
0.34
1.83
3.10
2.55
2.11
2.38
1.39
3.17
2.99
0.41
3.61
1.37
1.19
0.47
3.77
2.49
1.92
0.20
0.11
2.48
3.45
2.19
0.15
3.77
1.93
2.45
0.43
3.47
2.29
3.47
1.55
0.21
4.15
3.70
0.20
1.09
0.77
8.29
2.66
7.20
2.12
7.66
6.80
7.91
1.16
2.41
7.14
6.54
6.19
8.01
6.49
4.66
0.79
3.32
1.69
2.69
0.87
5.01
1.96
3.45
1.84
0.41
4.00
3.73
0.69
0.12
0.59
0.57
4.51
2.47
2.79
0.94
3.28
2.54
3.80
1.97
0.86
4.54
4.20
0.68
2.09
1.56
1.09
3.59
0.33
3.25
0.18
2.82
0.45
3.99
2.23
0.33
1.55
1.28
0.65
1.25
1.11
4.66
4.07
1.66
6.31
2.83
0.60
1.88
6.51
4.31
3.54
1.60
1.80
4.11
5.87
3.60
0.98
4.15
0.60
3.29
0.19
3.50
0.69
4.15
2.43
0.31
1.97
1.60
0.55
1.17
1.30
1.26
2.61
1.87
2.94
1.31
5.11
2.40
3.55
1.83
0.69
4.26
4.07
1.18
0.09
0.36
0.11
4.16
2.10
2.43
0.50
4.43
2.38
3.51
1.73
0.18
4.50
4.02
0.15
0.71
0.85
1.80
3.78
0.73
3.90
0.72
1.06
0.83
4.56
2.55
1.19
1.47
1.33
1.41
3.13
1.89
1.03
4.68
0.92
3.60
0.22
3.03
1.13
4.60
2.67
0.49
2.19
1.69
0.63
1.97
1.68
2.58
3.21
0.60
2.58
1.15
2.14
0.44
2.80
1.99
1.55
0.60
0.42
1.95
2.65
2.00
0.34
5.77
2.13
2.95
0.49
5.43
2.05
4.19
2.63
0.39
4.31
3.71
0.21
1.07
1.80
0.64
4.96
3.80
3.07
1.57
6.61
4.45
4.29
2.40
0.90
6.90
6.24
0.87
0.91
1.30
6.58
1.22
4.92
1.70
5.71
4.30
5.60
0.84
1.44
5.35
4.38
4.21
6.26
5.09
3.07
2.03
4.82
0.77
4.06
0.96
4.77
0.51
4.73
3.35
1.09
1.94
1.75
1.44
1.41
2.11
3.84
0.87
2.08
1.57
2.73
2.60
2.75
1.25
0.86
2.59
2.06
1.83
3.41
2.80
1.31
1.59
1.68
1.58
3.12
1.38
3.64
2.34
3.56
1.59
0.86
3.67
3.59
1.50
0.65
0.14
1.01
2.38
0.49
2.90
0.35
2.14
0.86
3.49
1.57
0.32
1.93
1.78
0.74
1.08
0.46
3.90
3.41
0.29
5.37
1.90
2.16
0.24
5.49
3.78
2.35
0.44
0.67
3.12
3.33
2.54
1.70
5.30
1.14
3.90
0.84
2.61
0.72
4.70
3.11
1.32
2.04
1.86
1.30
3.00
2.64
2.09
4.65
0.36
4.30
0.67
3.31
0.26
4.98
3.34
1.06
1.12
0.88
1.43
2.14
2.17
1.71
1.90
1.15
3.48
1.11
3.16
2.00
3.97
1.87
0.79
2.90
2.73
1.48
0.99
0.31
4.69
4.81
4.09
1.71
3.93
6.53
3.84
1.67
2.48
3.88
3.95
3.40
4.17
3.82
3.87
2.82
1.70
2.07
4.29
2.28
4.45
3.19
4.61
2.46
1.69
4.07
3.98
2.62
1.21
0.58
0.96
3.54
1.43
3.01
0.75
5.15
1.79
3.81
2.15
0.36
3.57
3.21
0.73
0.16
0.71
3.50
3.43
1.99
2.94
2.12
0.38
2.23
3.15
2.09
2.77
1.47
1.14
3.04
5.26
2.93
3.83
3.51
0.78
3.74
1.92
1.42
0.59
3.79
2.85
2.57
0.23
0.21
3.08
4.16
2.91
2.81
3.55
1.59
3.66
1.63
0.26
1.83
4.09
2.39
2.22
1.71
1.51
2.45
4.68
2.54
0.74
2.77
1.37
2.54
0.72
3.65
1.65
3.22
1.50
0.38
3.44
3.27
0.66
0.53
0.44
0.75
3.78
2.86
2.93
1.29
5.74
3.57
3.92
2.02
0.64
5.67
5.16
0.85
0.48
0.71
0.23
3.68
1.91
2.39
0.54
4.21
2.21
3.36
1.59
0.19
4.26
3.86
0.25
0.59
0.65
2.55
1.24
1.48
2.88
1.84
3.98
2.32
3.02
1.57
1.36
2.90
2.75
2.23
0.86
0.37
0.98
4.83
0.98
3.45
0.31
4.30
1.05
4.43
2.75
0.41
2.51
2.03
0.57
1.20
1.60
0.00
5.07
2.41
2.60
0.45
4.38
2.61
3.86
2.03
0.28
4.76
4.14
0.06
1.31
1.37
5.07
0.00
2.90
2.94
4.09
2.95
3.89
2.33
1.48
3.64
3.33
3.47
4.78
3.24
1.33
2.41
2.90
0.00
4.16
0.88
2.21
0.15
4.52
2.73
1.14
0.68
0.68
1.78
1.97
1.43
2.60
2.94
4.16
0.00
2.85
4.11
4.44
0.19
0.36
2.56
4.82
4.19
2.61
3.11
2.02
0.45
4.09
0.88
2.85
0.00
2.87
1.01
3.82
1.99
0.12
2.43
2.00
0.19
1.34
1.12
4.38
2.95
2.21
4.11
2.87
0.00
2.61
4.13
2.66
3.47
1.76
1.71
3.95
5.88
3.09
2.61
3.89
0.15
4.44
1.01
2.61
0.00
4.86
3.25
1.41
0.68
0.68
1.92
2.40
2.12
3.86
2.33
4.52
0.19
3.82
4.13
4.86
0.00
0.49
3.51
4.72
4.22
3.79
3.79
2.39
2.03
1.48
2.73
0.36
1.99
2.66
3.25
0.49
0.00
1.69
3.57
3.15
1.99
2.18
0.85
0.28
3.64
1.14
2.56
0.12
3.47
1.41
3.51
1.69
0.00
3.06
2.64
0.13
0.73
0.69
4.76
3.33
0.68
4.82
2.43
1.76
0.68
4.72
3.57
3.06
0.00
0.08
3.86
4.40
3.12
4.14
3.47
0.68
4.19
2.00
1.71
0.68
4.22
3.15
2.64
0.08
0.00
3.30
4.14
2.92
0.06
4.78
1.78
2.61
0.19
3.95
1.92
3.79
1.99
0.13
3.86
3.30
0.00
1.18
1.25
1.31
3.24
1.97
3.11
1.34
5.88
2.40
3.79
2.18
0.73
4.40
4.14
1.18
0.00
0.66
1.37
1.33
1.43
2.02
1.12
3.09
2.12
2.39
0.85
0.69
3.12
2.92
1.25
0.66
0.00
290
Appendix T
Selected Case Studies
291
T.1 Strategic Alliance (SA19 and SA20)
The international bridgehead agreement
Fratelli Dioguardi
Beacon construction Company
January 1992
Purpose
The intention of this Agreement is to enhance the competitiveness and the
profitability of each firm in its own country and to expand business opportunities for both
firms internationally.
Local presence:
Each firm will display its name and / or logo in the home office or other major,
permanent location of the other firm in a prominent position visible to all visitors. In
addition, each firm will be entitled to identify, on their letterheads and on other stationery
and literature, their presence in the location of the other firm. Both firms will make
arrangements to appropriately receive and transmit all calls and messages received.
Marketing
Both firms will endeavor to find and develop business opportunities which
capitalize on the joint capabilities of the two firms. In addition, each firm will assist the
other in developing contracts with local firms, developing projects in the home country of
the other, irrespective of whether or not this leads to opportunity for a joint venture.
292
Both firms undertake to publicize their collaboration to the fullest extent
practicable in furtherment of the marketing of their services both jointly and as
independent enterprises.
Consulting
Upon request by either firm, the other will provide technical, managerial, and
other information and consulting services requested subject to the following conditions:
z
z
z
The receiving firm shall provide the supplying firm with a statement indicating how
the information or services will be used.
What the information or services supplied have direct commercial value and are
utilized for projects in which the supplying firm does not participate in some way,
the receiving firm will recompense the supplying firm the full value of such
information or services.
In such situations, both firms will agree, in writing, about the scope of the work
involved and the budget and the schedule for such work.
Systems transfer
Each firm will share with other all management and technical systems which it
has developed, without restriction. Should either firm wish t incorporate such systems
into its ongoing operations, it shall be free to do so provide that;
z
z
z
All costs incurred by the supplying firm in assisting in such transfers be reimbursed.
IN such situations, both firms, will agree, in writing, about the scope fo the work
involved and the budge t and schedule for such work.
The receiving firm shall not enter into any agreements with third parties for the
further transfer of such systems without the express written permission of the
supplying firm.
Joint ventures
Wherever advantageous, both firms will enter into a joint venture to capitalize on
their combined capabilities. In such situation, the firms will, together, develop a joint
venture plan at the earliest practical point in time. Such joint venture plan will outline the
scope of the project and a budge and schedule for its accomplishment as well as all
necessary legal, financial, business, insurance, and other conditions required to properly
control the enterprise in the best interests of both parties.
293
Coordination
Upon the signing of this agreement, and on each anniversary thereof, both firms
will prepare an inventory of special skills, capabilities, and relationships which wiled to
inform their joint activities and programs. The principals of both firms shall meet every
six months to review such activities and programs and to agree on strategy for
collaboration for the upcoming 12 moth period. Such meetings will be held alternately in
the home offices of each firm.
Cost accounting
Except as otherwise set out in this Agreement, each firm will absorb its own costs
in fulfilling its obligations. Notwithstanding the above, each firm will keep accounting
records of such costs, including personnel costs, and will provide the other firm with such
records every six months.
In situations where specific budgets are developed – such ass for joint ventures,
consulting, and system transfer – each firm will provide a full accounting of its costs each
and every moth for the duration of the project and a final account at the end of the
project.
Costs will be the actual raw costs in the country where they are incurred and shall
not contain any adjustments or markups to cover overhead or administrative expenses.
Currency and language
All budgets will be developed in duplicate in the currency of the countries of both
firms, using the published exchange rates a the time of preparing the budget. Costs will
be recorded by each firm in its own currency. Revenues will be recorded in the currency
of both countries using the published exchange rates at the time of receipt of the
revenues. Both firms agree that they will – on the basis of the records outlined above –
make adjustments to the final accounts and otherwise make arrangements to fairly share
294
any currency risk arising from changes in exchange rates on the basis of their
contribution to the undertaking.
The primary language of communication shall be English. To the extent that
translations are required, both shall share equally in such costs, provided that both parties
agree in writing thereto for each instance.
Confidentiality
Each firm will respect confidentiality of all information received from the other
and undertake not to divulge any information identified as proprietary to third parties
without the express written permission of the supplying firm.
Term
This Agreement shall remain in effect for an initial term of one year from the date
of signing. At the conclusions of this term, the Agreement will be reviewed in light of the
results achieved and the interests of both firms.
Should there be a mutual interests in continuing the Agreement, it will be
modified to incorporate any necessary changes and shall remain in effect for a further
period of three years. Either firm shall have the right to terminate the Agreement a t the
end of this period by giving written notice the other no later than 12 months before ht
expiration date. Should no notice be given, the Agreement shall be automatically
continued for the next three-year period.
Limits
There is no obligation for either firm to involve the other in any project or
endeavor which it is , or might become, engaged, either locally or internationally. Further
more, both firms recognize that they are divisions of larger enterprises and have limited
authority with regard to the actions of their sister division.
295
Nothing in the Agreement shall preclude either firm from entering into a joint
venture with any other construction firm provided that such firm will inform the other
when such joint venture is created beyond its national borders.
T.2 BOT Project (PP01)
Bovis Lend Lease entered China with a Build Operate Transfer project in 1995.
The US$73 million project with a capacity of 400,000 m3/day is located in Dachang,
Shanghai. The Shanghai project incorporates water treatment, intake facilities, and a
pumping station. Bovis formed a 50:50 joint venture with Thames Water Overseas Ltd. to
obtain this project on a negotiation basis. The concession term includes 2 years for
construction and 20 years for operation. The contractual arrangement of this project is
Shanghai Municipal Government
depicted in Figure T.1.
Figure T.1: The Contractual Arrangement of the Shanghai Dachang Water Plant Project
Among these participants, both Thames Water Overseas Ltd. and Thames Water
International Services are subsidiaries of Thames Water; Bovis Asia Pacific is a
subsidiary of Bovis Construction; and the People’s Bank of China is the central bank of
China. In the Shanghai Project, the Shanghai Municipal Government promulgated the
Circular on Dachang Water Plant Administration, speculating the supply and off-take
responsibilities of related utility companies, and gave the concessionaire a Letter of
296
Support to confirm its commitment and facilitate debt financing. In the Shanghai Project,
the project company entered into a Best Endeavors Cooperative Agreement with the
People’s Bank of China, the central bank. This provides the project company with access
to the Shanghai Foreign Exchange Swap Centre and the China Foreign Exchange Trade
System, reducing the consortiums’ foreign exchange and transfer risks.
A fixed rate of return tariff was used in the Shanghai project. The Shanghai
government authority pays the Bovis-Thames company interest on the bank loan,
repayment costs of the bank loan capital, repayment of the investors' equity and a return
on equity at an undisclosed rate. In many early foreign privately financed infrastructure
projects, including the Shanghai Project, disputes were raised to the Arbitration Institute
of the Stockholm Chamber of Commerce as an intermediary. But this takes too long and
is costly for many investors, and the decisions are not binding (Project & Trade Finance,
1994).
T.3 Joint Venture Project (PA08 and PA09)
The following case came from ENR:
The joint venture between Blount and Bouygues came about without prior work
experience together, although both companies were operating in the Mid-east.
“We were following the job,” says John A. Caddell, chairman and CEO of
Blount’s international division, “and I guess the Bouygues people were too. About March
or April of 1977, they called us and asked if we would be interested in joining them. We
sent a person over and we worked out the job.” Caddell, the point man for the Blount side
of the joint venture negotiations, is already looking for a start within 60 days. “The major
hurdle,” he says, “is to get it organized, started and built. You take any schedule of 40
months and take $1.7 billion and spread it over that and you start talking about peaking at
$75 million or more per month.”
297
The organization is partly determined by the fact that it is a joint venture and
partly by the fact that it has senior and junior partners. Bouygues’ 55% participation
means, according to agreement, that it will select senior project and site managers from
its personnel and “the hierarchy adopted will be in accordance with Bouygues’
principles.” Caddell agrees that the French partner will have seniority. “They are the
sponsor,” he says. He point out that 45% partner Blount will “furnish their share of the
supervisory people. together, we’ll have about 400 to 500 supervisors.” Heading the team
will be a project manager, a Bouygues man,. The number Two man in charge will be a
Blount man.
The joint venture will have a separate management board that will meet
periodically – once a month for the first year or more often if necessary. The board,
however, will have equal representation, two form each company. “We have joint
ventured a lot in the past,” says Caddell, “but this is our first experience with a foreign
firm. Because of the language we have to be little more careful. Everything else is pretty
much the same.” In fact, language may be less of a problem. English will be used on the
job by management. Correspondence with the owner will be in both English and Arabic.
T.4 Representative Office (RO02)
Bechtel entered China in 1979 when the country just opened its door. The
establishment of residence led to immediate projects including a project development
consulting for Daqing Petroleum in Heilongjiang. The following news from ENR (March
26, 1981) indicated some information about how a representative office:
Inflation and the unprecedented budget deficit that led the People’s Republic of
China to postpone or cancel construction jobs have, in turn, led American Companies to
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reduce their presence there. But the designers, contractors and equipment makers are far
from ready to give up on that Far East market.
Typical of some of the moves being made by American firms, Bechtel Group,
Inc., San Francisco, has opted not to renew the lease on the large house it has occupied in
Beijing. It is taking less costly space. The company which had four employees in China,
is reducing that number to one and is giving him additional assignments outside the PRC.
Other firms, including Caterpillar Tractor Co., Peoria, Ill., and M.W. Kellogg co.,
Houston, are making similar moves. A Kellogg spokesman notes that the firm’s work on
20 process plants is winding down. He agreed with a Bechtel official’s comment: “At
east in the near term, there are very clear indications that the Chinese don’t intend to
proceed with heavy construction. We are optimistic that the time will come when the
PRC proceeds with some major infrastructure projects. That’s reason we are maintaining
a presence.”
T.5 Licensing (LS02)
In 1973, a Hong Kong businessman, Mr. C. P. Yu obtained the regional operation
right from the Japanese construction giant, Kumagi Gumi, and established Kumagai
Gumi (Hong Kong) Limited. The new company soon became one of the most prestigious
contractors in Hong Kong and was well known for adopting internationally advanced
technology. It has solid track records in various civil and buildings work undertaken in
both Hong Kong and Mainland China, including roads and highways, land reclamation,
ports, water works, bridges, submerged tube tunnel, site formation, container terminals,
power plants, apartment, government buildings and interior decoration. Hong Kong
Construction has successfully completed various prominent projects such as Hong Kong's
new International Airport Terminal at Chek Lap Kok, Lantau Fixed Crossing (Kap Shui
Mun - Ma Wan Viaduct), Castle Peak A and B power stations at Tap Shek Kok,
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Suspension Bridge across Mingiang River in Fuzhou and Shanghai's New International
Expo Centre.
After the retirement of Mr. Yu in 1996, many aspects of the company changed.
The new management decided to focus the business on building sector in Hong Kong and
Mainland China and got rid of many other diversified businesses like power plant
development. In addition, the management believed that it was time to eliminate the use
of the title “Kumagi Gumi” and stop paying for the title royalty. Then the licensing
agreement was terminated. The change of the licensing relationship also stopped an
informal agreement between the prior firm and Japanese Kumagi Gumi. According to
this agreement for market split, the Japanese licensor was responsible for pursuing large
urban projects like tunnels and the Hong Kong licensee pursued urban projects like
building and renovation. With denunciation of this agreement, the two companies became
independent and this implied that they could now compete again each other.
T.6 Local Agent (LA01)
AGENCY AGREEMENT
This agreement is made on this _____ day of February 2003, in the spirit of
mutual benefits and co-operation between:
BGP INCORPORATION Inc., China National Petroleum Corporation (“BGP” for
short), a corporation incorporated company registered and existing under the laws of PR
China, having its head office at No. 65 Fanyang Road, Zhuozhou, Hebei Province, PR
China (hereinafter called the Principal),
And
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PT.SARIPARI GEOSAINS, a company incorporated in accordance with the laws
of the Republic of Indonesia, having its head office at Wisma BSG 9th Floor Jl Abdul
Muis Jakarta, Indonesia (hereinafter called the Agent).
Whereas, PT. Saripari Geosains / BGP has been (is) the winner of the seismic
survey project, CALTEX Duri 4D, owned by Indonesia PT CALTEX Pacific Indonesia
(The client). Now therefore, for and in consideration of the terms and conditions herein
set forth, the parties hereto agree as follows:
Article 1 SUBJECT OF AGREEMENT
1.1 The Agent agrees that the Principal shall be the only valid operator to perform
the aforementioned project. The Principal shall execute any related business to perform
the project by（in）the name of the Agent and try its best to maintain the Agent’s good
reputation.
1.2 The Agent undertakes to act as full-time agent of the Principal for the
aforementioned seismic data acquisition project including the consultant of the
Principal’s Finance and any assistance if required.
1.3 The Agent shall be compensated for services, information and assistance
provided to the Principal by way of a commission fee payable at the rate agreed upon in
Article 5. ‘Commission and Payment’ and other relevant provisions.
1.4 This Agreement shall only be applied to the aforementioned seismic project
(Duri 4D) which shall be sent in the name of the Agent, the Principal or both parties. If
necessary, the Agent will be authorized to enter into a contractual agreement with the oil
company on the Principal’s behalf subject to another written consent by the Principal.
Article 2 SPECIAL PROVISIONS
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2.1 This Agreement shall commence at the date and year hereinabove written.
2.2 The Agent shall perform its duties and obligations on the basis of this
agreement.
2.3 Nothing in this Agreement shall be deemed to create a partnership or joint
venture between the parties hereto.
2.4 This Agreement shall remain valid commencing on the date of signature of
this Agreement and shall be only renewed with both parties’ prior written consent.
However, any meetings, acts or communications etc. shall not be deemed as a factual
agency relationship between two parties after expiration of this agreement.
2.5 This Agreement constitutes the entire agreement between the parties and shall
supercede all documents, minutes of meetings, letters or notes which may be in existence
at the date hereof, and all statements, representations and warranties which may have
been made by or on behalf of either party. This Agreement shall be capable of
amendment only by a statement in writing signed by a duly authorized representative of
both parties.
Article 3 THE AGENT AGREES THAT
3.1 The Agent shall make every effort to supply the Principal with information
and assistance to perform the aforementioned project.
3.2 The Agent shall ensure that proper formalities are carried out in compliance
with the local laws and as requested by the Principal.
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3.3 The Agent shall appoint Mr. Wang Liangku (the holder of passport No. ?
issued by ? on ? date) or any authorized representative of the Principal as General
Manager of PT. SARIPARI GEOSAINS, and appoint Mr. Liang Zhaoyang (the holder of
passport No. ? issued by ? on ? date) or any authorized representative of the Principal as
Chief Financial Controller to handle the Finance affairs of the company PT. SARIPARI
GEOSAINS. The salary of those person people will be borne by the Principal.
3.4 The Agent shall appoint one qualified finance officer to assist Chief Financial
Controller to handle the Finance affairs. The aforementioned qualified financial officer is
an employee of the agent, his salary and other cost or expenses incurred will be borne by
the Agent.
3.5 The Agent shall, at the request of the Principal, arrange the issue of to obtain
all licenses and other Government permits and clearances required to enable the Principal
to execute the project in the Territory. The costs incurred for obtaining such licenses and
permits will be borne by the Principal.
3.6 The Agent shall arrange, at the request of the Principal, for appropriate visas,
residence permits and other clearance necessary to enable the Principal’s staff and their
families to enter the Territory for the execution of project. The costs incurred by Agent in
this regard shall be borne by the Principal.
3.7 The Agent will make available office space and facilities in the Agent’s office
and one vehicle, for the usage by the Principal’s personnel with free charge.
3.8 The Agent shall not, nor shall any business, firm, or affiliated company of the
Agent represent or provide a competitive line of services in addition to the Principal’s
line of services in this agreement, nor enter into any agreement with any person, firm or
company carrying on any activity similar, or likely to compete with the principal in order
that the Principal’s commercial, financial and other interests can be protected.
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3.9 The Agent shall not delegate any part of its authority to any third party
without prior written consent of the Principal in the normal way of business.
3.10 The Agent shall not and shall ensure that its partners, employees and agents
do not, whether during the continuance of this Agreement or at any time thereafter,
disclose, divulge, make public or make use of, for whatever reason or purpose, any
confidential information or knowledge regarding the business or affairs of the Principal in
the event it is not in the interest of the Principal.
3.11 The Agent shall guarantee that he shall not claim any ownership of the
Principal’s property and assist the Principal to import and export his properties in and out
of Indonesia, either such properties are imported or exported by the name of the
Principal, the Agent or the oil company.
Article 4 THE PRINCIPAL AGREES THAT
4.1 The Principal shall perform its liabilities with good faith and loyalty.
4.2 The Principal shall protect the Agent’s commercial, financial and other
interests.
4.3 The Principal shall indemnify the Agent for acts lawfully performed and
liabilities incurred in the execution of its authority under this Agreement.
4.4 The Principal shall not disclose any confidential information or documents
regarding the Agent’s business.
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4.5 The Principal shall provide the Agent with all reasonable assistance to fulfill
this Agreement and inform the Agent timely on the projections to expand the Principal’s
geophysical services.
4.6 The Principal shall pay the Agent commission as agreed upon in 5.
COMMISSIONS AND PAYMENT.
Article 5 COMMISSION AND PAYMENT
5.1 The commission shall be （ ）percent ( %) of the net contract amount of the
aforementioned project. The net contract amount means the total amount approved by the
client or customer for all invoices submitted and approved for the project including
mobilization and demobilization fees, and irrespective of any tax on income levied on the
Principal by authoritative bodies within the territory.
5.2 Commission shall be paid to the Agent within 30 (thirty) days following the
entry to the Principal’s account in the same order of payments as received by the
Principal under the contract concluded.
Article 6 MODIFICATION AND ALTERATION
6.1 No modification, change, alteration or variation whatsoever to this Agreement
shall be binding on the Parties hereto unless and until the same shall have been in writing
and duly signed by the Parties.
Article 7 TERMINATION OF AGREEMENT
7.1 This Agreement can be terminated in any of the following cases:
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a) Upon all the procedures are fully finalized after fulfillments to the Contacts
resulted from the successes of the aforesaid project, including but not limited to
demobilization of personnel, re-exports of the equipments etc.
b) At any time thereafter by prior written consent in accordance with Clause 2.4.
c) Upon insolvency or bankruptcy of any of the parties hereto.
d) If either party hereto shall commit any breach of its obligations hereunder and
fail to remedy such breach within thirty (30) days of receipt of the other party’s notice
specifying such breach.
7.3 Upon termination of this Agreement, the Agent shall be compensated as per
the stipulation contained herein or other agreement related thereof. The Principal shall
never be held responsible for the Agent there from after the Principal has dissolved all the
compensation due to the Agent in line with this Agency agreement.
Article 8. FORCE MAJEURE
8.1 Neither the Principal nor the Agent shall be liable for failure to perform part
of this agreement other than the payment of money when the failure is due to flood,
strikes, or other labour disputes, accidents, war riots, insurrection, acts of Government,
Governmental regulations or other circumstances beyond the reasonable control of either
party.
Article 9. DISPUTES SETTLEMENT
9.1 Any dispute or difference arising out of or in connection with this Agreement
shall be first settled through reconciliation.
9.2 In case of failure to settle the dispute through reconciliation All disputes
arising in connection with the Agreement shall be finally settled by Hongkong
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International Arbitration Center (HKIAC) under the all its applicable rules and
procedures by three arbitrators appointed in accordance with the said rules. The seat of
arbitration shall be in Hongkong.The arbitration award shall be final and binding on the
parties hereto and subject to no appeals, and shall deal with the questions of costs of
arbitration and all matters related hereto.
9.3 This Agreement shall be governed by and construed in accordance with the
laws for the time being in force in the Republic of Indonesia.
Article 10. NOTICES
All notices given pursuant hereto shall be deemed to have been properly given if
sent by registered mail (airmail if the recipient is in another country), fax, or hand
delivery to the address given below for the recipient and shall be deemed to have been
duly given:
a) in the case of letters sent by mail, on the sixth working day in the country of
recipient after the date of despatch.
b) in the case of fax, on the first working day in the country of recipient after the
date of despatch.
c) in the case of hand delivery during normal business hours, at the time and date
certified by the person making the hand delivery.
Principal Agent
BGP PT.SARIPARI GEOSAINS
P.O. Box 11, Zhuozhou City Wisma BSG 9th Floor
Hebei Province Jl Abdul Muis Jakarta
072750 P.R. China Republic of Indonesia
Tel: +86-10-81201849 Tel : +62-21-3505370
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81201850 Fax: + 62-21-3505371
Fax: +86-10-69211392
IN WITNESS THEREOF, the parties hereto have duly executed this Agreement
the day and the year hereinabove written.
Principal Agent
Signed by: _______________________ Signed by ________________________
Title: ________________________ Title: ________________________
Date: ________________________ Date: ________________________
T.7 Joint Venture Company (JV13)
Zhenghua (Singapore) Pte Ltd., the second largest overseas subsidiary of China
Harbor, was established in the Republic of Singapore in 1986. It provided marine
construction services ranging from harbor building to sea piling. It was not until 1992 the
first local project was granted to the company. In 1995 a project over 100 million
Singapore dollars was granted by the Singapore Navy to construct a military base project.
This signaled the emergence of Zhenghua in the competitive construction market of
Singapore. The growth, however, was decelerated because of the global economic
recession. Zhenghua managed to survive with diversification into other sectors like labor,
shipping agency.
In furtherment of its localized operation, Zhenghua chose to establish joint
venture with local companies. On January 1, 2002, Zhenghua formed a joint venture
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company with Sembcorp Marine by contributing 81% equity. Sembcorp Marine is a
prestigious local public company with strong governmental background. The cooperation
between the two companies can be traced back to 1992 when Zhenghua implemented its
first project in Singapore. The previous long term cooperation (owner – contractor)
between the two companies formed the basis for the joint venture. Two chair positions
were set with each side occupying one. The parent company SembCorp Marine would
give preference to the joint venture in its contract procurement with proper rate of return.
Management of SembCorp would also help in bidding for other projects in Singapore
when necessary with their strong influences in local market. SembCorp planed to invest
more than 2 billion Singapore dollars in building a new shipyard and the joint venture has
started in preparation and planning. Because of the grant of this huge project, equity
ration of SembCorp in the joint venture will increase from the current 19% to 35%. An
immediate effect of the joint venture was that because of the interference of SembCorp
Martine, one client who had owned payment to Zhenghua for a long time
made its
payment.
T.8 Sole Venture Company (SV08)
At the end of 1985, China State Construction Engineering Company (CSCEC)
established a wholly owned subsidiary China Construction America in Delaware, the
United States. From 1987 to 1989, China Construction America took part in a series of
residential building development projects. However with the economic recession and
other reasons, some of these property projects were not successful and the new company
came into debt.
From 1996, the company changed its business model and focused on construction
projects from Chinese investors and government. The first construction project was the
renovation of the Military Officer Department building of Chinese Embassy. When the
company heard that a Chinese manufacturer, Haier, would establish a factory in the US,
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they provided free consulting services ranging from location choice, land ownership
analysis, environmental policy analysis and local labor and material prices. They
successfully got confidence from Haier and obtained the construction project and
subsequently with an 11 month fast track delivery (from April 1999 to March 2000) of
the 280,000 square feet facility with excellent performance, they demonstrated their
professionalism in technology and management. This project was appraised by ENR as
an excellent example of fast track project. In April 2001 China Construction America got
the project to build the office building for Chinese Embassy in Vancouver. In August, the
Chinese New York Consulate Apartments was finished on the 43rd Revenue in
Manhattan, New York, and this projects was listed by New York Times as one of the five
most beautiful buildings in Manhattan.
From 2001, the company started bidding for local public projects. For lack of
knowledge of local markets and the conservation, bidding prices given were normally
higher than successful bids. For example in the first bid, the price was 20% higher than
the successful bid. However with accumulation of experience and knowledge, the bidding
becomes more and more reasonable and approaching the successful bids. In the 10th
project the company bided for, a primary school in South Carolina, the project was
granted to China Construction America on September 23 2002. This was the first public
project the company got in the United States. In November 2003, the company built the
railway station on the 8th Revenue in New York. This project received the “Excellent
Construction Project Prize” granted by “Big New York Building” journal in 2004.
In February 2005, the 240 million US dollars Hallam Garden Hotel project was
granted to the company after severely competitive bidding with involvement of 6
international contractors. China Construction America got the bid with the second highest
bid. Experience and prestige and the international procurement networks of the firms
were believed to be the critical success factors for the bid winning.
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T.9 Branch Office (BO04)
Shimizu established a representative office in Taiwan in 1986. In 1993 the
representative was changed into a branch office with capital of NT$5,000,000. In 2000,
the branch was expanded with capital of NT300,000,000. The employees of the branch
are summarized as follows:
Japanese Staff
Construction dept.
Civil dept.
Energy Engineering dept.
Local Staff
Total
42
11
29
2
47
89
VITA
Chuan Chen is from Sichuan Province, People’s Republic of China. He received
his bachelor’s degree in civil engineering from the Tsinghua University, Beijing, China
with a major in construction engineering and management in 1999. From 1998 through
1999 he worked as an intern with UK-based Kvaerner Cleveland Bridge Ltd on the
Jiangyin Yangtze River Highway Suspension Bridge Project, the fourth longest bridge in
the world, with duties in contract administration.
Upon graduation from Tsinghua, Chuan went to the National University of
Singapore for his Master of Engineering degree in Infrastructure Systems and
Management. As a research scholar, he conducted research on infrastructure development
with the Build-Operate-Transfer (BOT) method in China. He innovatively applied
Interface Management concepts and theories to handle the complexity characteristic of
BOT projects. Several papers were developed based on his thesis titled “Challenges and
opportunities for BOT application in China”.
In 2002, Chuan received a research assistantship and Dean’s Fellowship from the
Pennsylvania State University and started his Ph.D. pursuit in the Construction
Management Option of the Architectural Engineering Department. In the summer of
2002, Chuan went back to Beijing to work as an intern with the Ministry of Construction
of China. He took part in a minister initiated research project on comparative policy
analysis. At Penn State, Chuan focused his research on market entry mode definition and
selection for international construction. He worked as a teaching assistant for two
graduate level courses, and also as an investigator in a Construction Industry Institute
(CII) funded project (RT211), “Effective use of the global engineering work force”.